ComfortDelGro - OCBC Investment 2018-06-08: Waiting For The Light To Turn Green

ComfortDelGro - OCBC Investment 2018-06-08: Waiting For The Light To Turn  Green COMFORTDELGRO CORPORATION LTD SGX: C52

ComfortDelGro - Waiting For The Light To Turn Green

  • Terminated deal to acquire Lion City Rental (LCR).
  • Still wants a foot in private hire car (PHC) space.
  • Wait for better clarity.

Not acquiring LCR a positive

  • ComfortDelGro (CDG) recently announced that it has reached a mutual agreement with Uber to terminate the sale and purchase agreement for the proposed acquisition of a 51% stake in Uber’s car rental arm in Singapore, Lion City Holdings, which in turns operates Lion City Rental (LCR).
  • Given Grab’s acquisition of Uber’s Southeast Asia operations, ComfortDelGro’s acquisition of LCR no longer make sense since it was based on a partnership with Uber’s drivers renting vehicles from LCR. Hence, we view this termination of LCR acquisition positive for ComfortDelGro, as it frees up S$295m in cash consideration that would have been spent on assets that may become unproductive without the partnership with Uber.
  • We believe walking away from this acquisition allows ComfortDelGro to make other accretive acquisitions to grow its businesses, potentially outside of the disrupted taxi segment.

Intends to go into PHC space

  • Nonetheless, ComfortDelGro has reiterated that it still intends to go into the private hire car (PHC) space. During 1Q18 earnings call, ComfortDelGro has also said the most likely way to enter the PHC space would be through partnerships with PHC operators rather than creating a new platform.
  • More recently, post Grab-Uber merger, new entrants have also entered the PHC space in Singapore, with more said to launch services in 2H18. Notably, Indonesian ride-hailing giant, Go-Jek, has announced in May 18 that it will launch services into four new markets including Singapore over the next four months. Go-Jek is also reported to be in discussions with ComfortDelGro in a potential partnership in Singapore but it remains a speculation at this stage.
  • All considered, we deem a tie-up with Go-Jek a positive one as it may potentially lead to more booking jobs for ComfortDelGro taxi hirers through Go-Jek’s PHC platform, translating to lower fleet idle rate as drivers are less incentivised to return their taxis with more sustained earnings.

Unchanged Fair Value at S$2.50

  • Given the fluid situation, we prefer to wait for better clarity over ComfortDelGro’s strategy competing in the PHC space as well as Grab’s response to new competitors.
  • For now, we keep our forecasts unchanged. 
  • (Downgrade ComfortDelGro from Buy to HOLD, with an unchanged fair value estimate of S$2.50)

Eugene Chua OCBC Investment | https://www.iocbc.com/ 2018-06-08
SGX Stock Analyst Report BUY Maintain BUY 2.500 Same 2.500