ComfortDelGro - CGS-CIMB Research 2018-10-11: Should Go-Jek Warrant Concerns?


ComfortDelGro - Should Go-Jek Warrant Concerns?

  • We detailed the possible earnings impact (c.4-6% decline from our base FY19-20F EPS in our worst-case) from new potential PHC entrant, Go-Jek
  • We project better 3Q18F earnings q-o-q for ComfortDelGro amid expansion of its taxi fleet in Singapore. 
  • Maintain ADD with an unchanged target price of S$2.75. 

Does new potential PHC entrant Go-Jek warrant concern?

  • We do not think so, at least in the immediate term.
  • With the lack of a sizeable domestic app user base providing ample demand for taxi drivers to switch over (also considering taxis can still get rides from street hailing), Go-Jek will need to go after Grab’s private hire car (PHC) driver base first to form the supply. Nevertheless, there is the risk that a revival of PHC competition could eventually hurt ComfortDelGro’s taxi earnings in the longer term. 
  • We detail the possible impact in our scenario analysis on the following page (see PDF report attached).

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Under our worst-case scenario

  • We see the possibility of a repeat of an exodus of taxi drivers (average of c.380 per month over Jul-Dec 17) that could reverse the gains in ComfortDelGro’s taxi fleet over the longer term (we project a 4-6% decline from our base FY19-20F EPS in this case) should PHC players start to aggressively entice taxi drivers to cater to the bulging demand from app users.
  • We believe the chances of this happening are remote, but if it did we believe the earliest this scenario would play out is FY20F.

Lack of app interoperability may put Go-Jek at a disadvantage

  • Unlike Grab which has a single app that can be used across borders, Go-Jek partners with local founding teams to run its overseas operations and has a separate ride-hailing app for each respective market. 
  • We think it will launch a separate app for its Singapore operations as well, thus making it more challenging for Go-Jek to roll out new features and security fixes across its different apps. This may limit Go-Jek in posing serious PHC competition if the user experience is proven to be lacking.

Earnings preview for 3Q18F

  • We estimate ComfortDelGro’s 3Q18F net profit was c.S$77m (+3% q-o-q, -4% y-o-y) amid expansion in its Singapore taxi fleet. As at end-Aug 18, ComfortDelGro’s taxi fleet in Singapore numbered 12,677, marking two consecutive months of increase from 12,535 as at end-Jun 18 (See Figure 7 in the PDF report attached).
  • ComfortDelGro could also benefit from a better-than-expected fare hike (we assume 2% fare hike in our current forecasts) which could bring ComfortDelGro’s rail operations back to the black sooner.

Maintain ADD

  • We retain our ADD call as we are holding out our base-case scenario assumptions. Our DCF-based Target Price of S$2.75 (WACC: 7.4%, LTG: 2%) remains unchanged though we trim FY18-20F EPS due to higher minority interest assumptions.
  • Key risk is a revival in PHC competition impacting a recovery in ComfortDelGro’s taxi earnings.

Colin TAN CGS-CIMB Research | Cezzane SEE CGS-CIMB Research | https://research.itradecimb.com/ 2018-10-11
SGX Stock Analyst Report ADD Maintain ADD 2.750 Same 2.750