ComfortDelGro - OCBC Investment 2018-02-02: Petrol Sales To Help Offset Declining Diesel Sales

ComfortDelGro - OCBC Investment 2018-02-02: Petrol Sales To Help Offset Declining Diesel Sales COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - Petrol Sales To Help Offset Declining Diesel Sales

  • Scaling up on petrol station business.
  • Potential to grow by serving Uber’s fleet.
  • Market rumour dismissed by Uber.

Alliance with Uber should help stabilize taxi operations 

  • While we highlighted previously that we do not believe the alliance with Uber to be one that is spectacular, we do expect it to help stabilize ComfortDelGro Corporation’s (CDG) taxi operations, particularly with regards to its fleet idle rate. 
  • Separately, ComfortDelGro is reported to be scaling up on its petrol station business (The Straits Times article dated 2018-01-24) this year to serve its growing fleet of hybrid taxis, which we believe makes sense given the change in fleet profile. However we do not think this will provide much lift to its earnings, at least not until ComfortDelGro’s petrol station starts to serve the larger private hire car fleet of Uber, post-approval of the ComfortDelGro-Uber alliance. 
  • We believe the latter has potential to more than offset the declining diesel sales.

Market rumour on Grab acquiring Uber’s SEA business 

  • Another recent news report (VulcanPost article dated 2018-01-23) cited market chatter that Grab is in talks to acquire Uber’s operations in Southeast Asia. If it does happen, we see two possible notable outcomes:
    1. Grab will become the only 3rd party ride-hailing service provider in Singapore, which allows it to control all ride bookings, thereby further eroding ComfortDelGro’s competitive advantage of having scale in the ride-booking industry, and/or
    2. being in a monopolistic position also allows Grab to have control in raising car rental rates, reducing subsidies, and changing fare structures in order to improve profitability, all of which we deem beneficial for ComfortDelGro. 
  • All said, Uber has refuted the claims stating it remains 100% focused on building its business across Asia Pacific (ChannelNewsAsia article dated 2018-01-18). Hence, without concrete details, we advise investors against speculating on such market rumour.

Awaiting regulatory approval for alliance with Uber 

  • Factoring in petrol sales assumption to offset declining diesel sales, we raise our FY18F-FY21F earnings slightly by 1-3%, and increase our Fair Value from S$2.05 to S$2.12. Therefore, based on 1 Feb 18 closing price of S$2.15, we deem ComfortDelGro fairly valued, supported by a FY18F dividend yield of ~4.9%.

Eugene Chua OCBC Investment | http://www.iocbc.com/ 2018-02-02
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 2.12 Up 2.050