ComfortDelGro - CGS-CIMB 2018-05-25: Parting Ways With Lion City Rental; Seeking New M&A Avenues

ComfortDelGro - CGS-CIMB 2018-05-25: Parting Ways With Lcr; Seeking New M&a Avenues COMFORTDELGRO CORPORATION LTD SGX: C52

ComfortDelGro - Parting Ways With Lion City Rental; Seeking New M&A Avenues

  • ComfortDelGro (CD) has announced that it will be parting ways with Lion City Rental (LCR). This is not a surprise given that Uber’s exit renders the tie-up less attractive.
  • ComfortDelGro remains interested in entering the private-hire market and is still open to M&A options. News of a tie-up with Go-Jek has surfaced; but it remains unsubstantiated.
  • We maintain our HOLD call and DCF-based Target Price of S$2.37. 
  • While taxi headwinds have moderated, we still see a lack of meaningful growth catalysts for ComfortDelGro.



Walking away from Lion City Rental (LCR)

  • ComfortDelGro (CD) has announced that it will no longer be acquiring the 51%-stake in Uber’s wholly-owned car rental subsidiary in Singapore, Lion City Holdings Pte Ltd, which operates Lion City Rental (LCR). Consequently, the application to the Competition and Consumer Commission (CCC) of Singapore will be withdrawn, and parties shall have no further obligations or claims against one another.
  • To recap, in Dec 2017, as part of ComfortDelGro’s tie-up with Uber, ComfortDelGro announced the planned acquisition of a 51%-stake in the operator of Uber’s Lion City Rental for S$642m.


No surprises: Uber’s exit renders the tie-up less attractive

  • When the Grab/Uber acquisition emerged in Mar 18, we theorised that there was a high likelihood that the proposed deal between ComfortDelGro and Uber would be renegotiated (positive if pricing for Lion City Rental could be negotiated lower) or shelved (mildly negative as it would result in ComfortDelGro’s taxi business being status-quo especially if private-hire competition picks up again).
  • We believe ComfortDelGro made the move largely to tap on Uber’s private-hire client network and ride-hailing technology, but without that, the tie-up was rendered less attractive, in our view.


Still looking to enter the private hire market; tie-up with Go-Jek?

  • Management reiterated that it still intends to enter the private hire vehicle space as it foresees increasing convergence of private hire vehicles and taxis in the personalised mobility market.
  • Go-Jek, an Indonesian ride-hailing company, recently confirmed that it plans to enter the Singapore market in the coming months and invest US$500m for international expansion that includes Vietnam, Thailand and the Philippines. Go-Jek also said that will take the approach of providing technological support to its chosen partner countries and leave the local founding teams to run the companies that Go-Jek will help set up.
  • Recent local news reports quoted unnamed sources as saying that ComfortDelGro and Go-Jek are in talks for a tie-up. In our view, Go-Jek’s passive management style could appear to be attractive to ComfortDelGro. However, the reports remain unsubstantiated, hence it is currently too premature to conclude on any possible partnership.


Maintain HOLD and Target Price of S$2.37

  • We maintain our forecasts as we had not incorporated any earnings from the proposed tie-up with Lion City Rental.
  • Whilst the taxi business headwinds have moderated, we still see a lack of meaningful growth catalysts for ComfortDelGro.
  • With total returns of c.2% for the stock, we maintain our HOLD call and DCF-based Target Price of S$2.37 on the stock.
  • Upside risks include possible earnings-accretive M&As and higher dividends.
  • Downside risks include a pick-up in private-hire car competition, which could lead to a deterioration in taxi earnings again; and lower public transport profits.





Cezzane SEE CGS-CIMB | LIM Siew Khee CGS-CIMB | https://research.itradecimb.com/ 2018-05-25
SGX Stock Analyst Report HOLD Maintain HOLD 2.370 Same 2.370



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