ComfortDelGro (CD SP) - Maybank Kim Eng 2018-01-19: Uberising Comfort

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COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro (CD SP) - Uberising Comfort

New service could benefit Comfort taxis and riders 

• ComfortDelGro and Uber have jointly announced the details of their new service, UberFLASH. Starting on 19 Jan 2018, the new service will match Uber riders with the nearest vehicle, a ComfortDelGro taxi or an uberX vehicle.
• We view this positively, as the addition of ComfortDelGro taxis into the platform should increase the booking jobs of taxi drivers and reduce waiting time of riders. Also, lower fares and dynamic pricing function should increase the competitiveness of ComfortDelGro taxis. 
• Maintain BUY and DCF-based Target Price of SGD2.40 (WACC 9%; LTG 0%) (implies 16x FY18E EPS, in line with LT mean). 
• Key indicators to monitor are:
  1. number of taxi bookings under the new platform;
  2. the rate of reduction in taxi fleet; and
  3. Uber’s market share.

Potential increase in booking jobs of Comfort taxis 

• In this collaboration, ComfortDelGro’s taxi drivers could receive more booking jobs due to the inclusion into Uber’s ride-booking platform with its extensive base of users. In addition, Uber’s technology centric ride booking platform should increase efficiency and reduce idle times. 
• More importantly, improved earnings for taxi drivers will reduce the declining demand to rent and drive ComfortDelGro taxis.

Dynamic pricing could level the playing field 

• After the inclusion into Uber’s ride booking platform, ComfortDelGro taxis could level the playing field with other private hire vehicles. 
• UberFLASH will enable dynamic pricing for ComfortDelGro taxis, which will revise the fares upward or downward based on demand and supply. Without dynamic pricing, we note that the pricing under UberFLASH is comparable to Grab and ComfortDelGro taxis.

Catalysts: further Uber tie-up and rail turnaround 

• Key catalysts for the stock include:
  1. completion of acquisition of Uber-owned Lion City Rental by ComfortDelGro, which is expected to be an earnings accretive deal; and
  2. losses narrowing for the rail segment in 2018 as revenue from the Downtown Line 3 started in Oct 2017. As a result, we expect rail EBIT loss to narrow from SGD25m in FY17 to SGD5m in FY18.

Swing Factors

Upside

• Higher-than-expected bus profitability.
• Successful bids for new rail lines in Singapore.
• Value-enhancing acquisitions of overseas business.

Downside

• Decline in taxi utilisation or rental rates.
• Overpaying for acquisitions.
• Higher labour and energy costs.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-01-19

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 2.400 Same 2.400