ComfortDelGro - OCBC Investment 2018-01-04: Discussions With Uber Yielded Nothing Spectacular

ComfortDelGro - OCBC Investment 2018-01-04: Discussions With Uber Yielded Nothing Spectacular COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - Discussions With Uber Yielded Nothing Spectacular

  • To buy 51% stake in Uber’s Lion City Rentals.
  • Cash consideration of ~S$295m.
  • Unlikely a game-changer.

Taking a majority stake in Uber’s car rental company 

  • More than three months after ComfortDelGro Corporation Ltd (CDG) entered into exclusive discussions with Uber in relation to a potential strategic alliance, CDG announced last month that they have agreed to form a JV to leverage on each other’s expertise. 
  • Under the agreement, ComfortDelGro will acquire a 51% stake in Uber’s wholly-owned car rental subsidiary in Singapore, Lion City Holdings, which operates Lion City Rentals (LCR) that has a fleet of ~14,000 vehicles. The cash consideration for this acquisition is ~S$295m (~0.9x NAV), arrived at based on the value of about 12,450 vehicles, which will be financed by internal funds. 
  • We believe ComfortDelGro should not have face any difficulty financing this acquisition given its cash balance of ~S$538m and net cash position of S$188m, as at end3Q17. 
  • ComfortDelGro has also agreed to pay for more vehicles when utilisation of the fleet increases.

Leveraging on the different expertise of both parties 

  • According to the announcement, post-acquisition, LCR will be able to benefit from ComfortDelGro’s expertise in fleet management and operations while ComfortDelGro’s taxi drivers will be able to receive ride requests on Uber’s app, which increases the taxi drivers’ potential earnings. 
  • Indirectly, higher earnings will likely lead to lower fleet idle rate as fewer drivers would want to return their taxis or switch to fully become a private hire car driver. 
  • In our view, the key benefit ComfortDelGro derives out of this JV is the access to the Uber app, translating to a larger passenger base for ComfortDelGro’s drivers, but at a cost of S$295m or more.

Maintain HOLD with unchanged S$2.05 FV 

  • All said, ComfortDelGro’s tie-up with Uber is still subject to necessary regulatory approvals. 
  • In addition, we do not see the acquisition as a game-changer for ComfortDelGro, though we do expect allowing Uber app users to directly book ComfortDelGro’s taxis to help ease pressures on ComfortDelGro’s fleet idle rate as this collaboration should lead to more ride requests for ComfortDelGro drivers. 
  • Keeping our forecasts unchanged for now, we maintain HOLD on ComfortDelGro with S$2.05 FV.

Eugene Chua OCBC Investment | http://www.ocbcresearch.com/ 2018-01-04
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 2.050 Same 2.050