ComfortDelGro (CD SP) - DBS Research 2018-02-20: ComfortDelGro-Lion City Rental Acquisition Moves Into Phase 2 Of CCS Review

ComfortDelGro (CD SP) - DBS Vickers 2018-02-20: CD-Lion City Rental Acquisition Moves Into Phase 2 Of CCS Review COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro (CD SP) - CD-Lion City Rental Acquisition Moves Into Phase 2 Of CCS Review

  • Competition Commission of Singapore (CCS) to further review ComfortDelGro-Lion City Holdings acquisition / JV; raised 10 issues that require further review.
  • Undertaking more comprehensive Phase 2 review; to take up to 120 working days.
  • ComfortDelGro and Uber committed and will address concerns
  • Maintain HOLD, Target Price: S$2.12.

What’s New 

CD-LCH deal to require further review by CCS. 

  • The Competition Commission of Singapore (CCS) has announced that the proposed joint venture between ComfortDelGro and Uber Technologies – including a 51%- stake acquisition of the latter’s wholly-owned subsidiary in Lion City Holdings Pte Ltd (LCH) will enter the second stage of deliberation.

CCS raised 10 issues that require review. 

  • The CCS has completed the first phase, and was unable to conclude that the proposed transaction would not raise competition concerns. In a media release, the CCS listed 10 issues that require further in-depth assessment. These include “whether there will be lessening of competition in the industry, given the various contractual and shareholding relationships between players, as well as potential consolidation in the industry”. 
  • We believe this could be alluding to the current market talk Uber selling its Southeast Asian operations to Grab.

CD/Uber committed to address issues raised. 

  • ComfortDelGro has indicated that itself and Uber intend to file all relevant documents and to address concerns to the best of their ability. It was indicated that phase 2 of the review can take up to 120 working days, given a more comprehensive examination of the effects of the transaction.

Our views 

Remain neutral. 

  • We continue to maintain our neutral stance on the counter, given the uncertainty of the outcome, coupled with the potential different scenarios that could arise if the acquisition indeed does proceed. 
  • We do see potential synergies from the consummation of the deal, from the perspective of vehicle maintenance, inspection, petrol sales and insurance, etc., arising from managing a larger fleet. However, we have not priced in such impact in our forecasts. 
  • For one thing, it depends on the level of competition, particularly from Grab, whether this competition will persist, and at what rate. In addition, we need to consider the rental rates of taxis versus that of private-hire vehicles.
  • There also has been market talk that Uber is in discussions with Grab to divest its Southeast Asian operations to the latter. While this has been denied, we believe it continues to create uncertainty on the outcome of the deal.
  • We retain our HOLD recommendation, with Target Price: S$2.12.
  • Our initial note on the potential acquisition and JV can be accessed via the following link: 11 Dec 2017: ComfortDelGro: Buying into private-hire vehicles through Lion City

Andy SIM CFA DBS Vickers | http://www.dbsvickers.com/ 2018-02-20
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 2.12 Same 2.12