ComfortDelGro - OCBC Investment 2018-03-21: Taxi Operating Environment Seems To Be Stabilizing

ComfortDelGro - OCBC Investment 2018-03-21: Taxi Operating Environment Seems To Be Stabilizing COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - Taxi Operating Environment Seems To Be Stabilizing

  • Encouraging operating indicators.
  • Potential increase in fares ahead.
  • PHC services may face more regulations.

Positive trend in taxi industry average engaged mileage 

  • In the recent few months up to Jan 18, we saw encouraging taxi operating indicators pointing to a more stabilized environment, which is positive for ComfortDelGro (CDG)
    • Firstly, we noted 3 consecutive months and 5 consecutive months of y-o-y growth in industry average engaged mileage recorded for one-shift taxis and two-shift taxis, respectively. In our view, this is positive as it indicates more stabilized taxi drivers’ earnings with higher mileage driven. 
    • In addition, we also noted that m-o-m growth in rental cars were more subdued while the rate of decline in taxi fleet size slowed down for the more significant taxi operators in Singapore. In essence, this trend points to a more stabilized environment for the taxis and private-hire car (PHC) services. 
  • We believe a more stabilized environment is positive for ComfortDelGro taxi business as it translates to a more stabilized taxi fleet hire-out rate as well.

Transport minister hinted rising fares on higher costs ahead 

  • Separately, during the Singapore Budget 2018 debate in early-Mar 18, two points positive for ComfortDelGro’s outlook were highlighted by the Ministry of Transport. 
    • Firstly, fares are likely to rise with the Transport Minister stating that commuters are likely to have to share in the cost rise as the government continues to invest in buses and trains to improve the public transport service standards in the coming years. Fare increases bode well for ComfortDelGro’s rail operations of both Downtown Line and North-East Line. 
    • Secondly, given how fast the industry has grown over the past few years, the government is also now studying how to license PHC services to have sufficient regulatory oversight, which in our view, helps further level the playing field between traditional taxi business and PHC services.

Unchanged Fair Value of S$2.25 

  • For now, one catalyst to look out for would be the pending regulatory approval of ComfortDelGro’s alliance with Uber, which in our view should also open up potential opportunities from enlarged fleet to sell petrol and provide vehicle maintenance services. 
  • On above-mentioned reasons, we see more upside than downside to ComfortDelGro’s outlook.

Eugene Chua OCBC Investment | http://www.iocbc.com/ 2018-03-21
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 2.250 Same 2.250