ComfortDelGro - CIMB Research 2018-01-19: Kickstarts Collaboration With Uber

UberFLASH Pricing Uber JustGrab COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - Kickstarts Collaboration With Uber

UberFlash, a service that matches riders with the nearest ComfortDelGro (CD) taxi or an uberX vehicle, will be launched in Singapore on Jan 19. This service goes head-to-head with competitor JustGrab and should help ComfortDelGro to enhance the utilisation of its taxis.
The street could possibly be more excited on the finalisation of ComfortDelGro’s 51%-stake acquisition in Lion City Rental which spearheads its entry in the private-hire segment.

ComfortDelGro and Uber have issued a joint media release of their new service known as UberFlash.
UberFlash offers a similar service to competitor JustGrab (which was launched in Mar 17), whereby a rider is matched with the nearest taxi or private-hire car with each respective driver-partner network.
In terms of pricing points, there are minor differences between the two competitors. UberFlash’s base fare is slightly higher at S$3.00 (vs. JustGrab’s S$2.50) but its fare/km is slightly lower at S$0.45 (vs. S$0.50). However, UberFlash’s pricing will include dynamic pricing.

We note that the UberFlash base fare and fare/km are lower than the current ComfortDelGro base fare of S$3.20-3.90 and fare/km of S$0.55-0.63. Hence, taxi drivers could relegate to it during peak timings to reap the benefits of surge pricing.
This service might not propel the taxi fleet back to growth mode, as the personal mobility space has remained competitive (ratio of rental cars vs. taxis have risen significantly). But it should broaden ComfortDelGro’s taxi drivers’ avenue for bookings, potentially leading to lower taxi idling rate which stood at c.5% in 9M17, and in turn lower driver attrition, in our view.

To recap, ComfortDelGro has proposed the acquisition for a 51% stake in Uber’s preferred rental car unit Lion City Rental (LCR) in Dec 17. The acquisition was priced at S$642m based on the value of 12,450 cars, out of Lion City Rental’s fleet of 14,000.
The acquisition is still pending regulatory approval, but post the finalisation of the approval, all eyes will be on whether Lion City Rental is a profitable entity.
This purchase marks ComfortDelGro’s move into the private-hire space, and could also breathe life into its Automotive Engineering Services (AES) division, in our view.
We maintain out HOLD rating and DCF-based target price of S$2.15.

Catalysts include
1. earnings accretion from the Lion City Rental acquisition; and
2. higher-than-expected dividend announced in the upcoming 3Q17 results.
Downside risks include
1. Lion City Rental being an unprofitable entity, hence rendering the deal non-accretive; and
2. lower-than-expected dividend announced in the upcoming 3Q17 results.

Cezzane SEE CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2018-01-19

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