ComfortDelGro - OCBC Investment 2018-04-06: Navigating Through A Dynamic Competitive Landscape

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COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - Navigating Through A Dynamic Competitive Landscape

• Grab to merge with Uber in Southeast Asia.
• Situation remains fluid.
• Forecasts unchanged for now.

Grab-Uber deal under review by CCS 

• ComfortDelGro's (CDG) taxi business remains in the midst of a dynamic competitive landscape as Grab announced on 26 Mar 18 the acquisition of Uber’s Southeast Asia operations. 
• However, on 30 Mar 18, the Competition Commission of Singapore (CCS) said that it was not notified of the merger and has commenced an investigation, with reasonable grounds for suspecting that this transaction has infringed the Competition Act. As the result, the CCS proposed interim measures directions (IMD) requiring both parties to maintain their pre-transaction independent pricing, pricing policies, and product options. 
• The IMD also mandates the two parties not to take any action that will result to the integration of the two businesses, until the IMD is withdrawn or successfully challenged on an appeal. Other than Singapore, Malaysia and the Philippines have both put Grab on anti-competition watch while Indonesia has mandated private-hire car (PHC) operators to register as transport companies.

More PHC operators to launch services in Singapore 

• Shortly after the Grab-Uber merger was announced, carpooling app, Ryde, said it will be launching its new PHC service, RydeX, in Singapore. Indonesian technology company GoJek was also reported to be making plans to expand its services to Singapore as well. Given such fluid situation, we see several possible outcomes (non-exhaustive):
  1. CCS approves the merger but will likely prevent collaboration between Grab and CDG,
  2. CCS blocks the merger while CDG’s alliance with Uber gets approved, which we believe will further stabilize the taxi business, or
  3. CCS blocks the merger as well as CDG-Uber alliance. 
• In our view, even if CCS approves the merger, it is likely there will be restrictions on Grab to ensure they do not take any action that will result in further decline of the taxi industry so as to maintain a fair level of competitiveness of both industries.

Supported by 5.0% forward dividend yield 

• All considered, we continue to see more upside than downside to CDG’s outlook, and continue to expect earnings to bottom out in FY18. With lack of clarity and details, we keep our S$2.25 Fair Value Estimate unchanged for now.

Note: "Competition Commission of Singapore (CCS)" was renamed to "Competition and Consumer Commission of Singapore (CCCS)" w.e.f. 1-Apr-2018.

Eugene Chua OCBC Investment | http://www.iocbc.com/ 2018-04-06

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 2.250 Same 2.250