ComfortDelGro - CGS-CIMB Research 2019-05-07: A Win-Win Situation For ComfortDelGro & Drivers


ComfortDelGro - A Win-Win Situation For ComfortDelGro & Drivers

  • COMFORTDELGRO CORPORATION LTD (SGX:C52) could be opening up its booking app to c.46,500 private-hire vehicle (PHV) drivers, potentially yielding a new revenue stream from ride-hailing services.
  • Dynamic pricing could also be introduced that may allow ComfortDelGro drivers to benefit from surge in fares under peak demand conditions.
  • We deem ComfortDelGro a net beneficiary of these changes.

A win-win option for CD and its drivers

  • COMFORTDELGRO CORPORATION LTD (SGX:C52) is expected to introduce dynamic pricing options through its booking app, alongside regular metered fares, as reported by The Straits Times (see report). We understand that the relevant authorities have given the approval for surge pricing by taxi operators.
  • In conjunction with its voluntary fare scheme (lower taxi rent in exchange for 15% of fares) recently introduced, this could help improve retention of its taxi drivers as they could likewise earn as much as or more than private-hire vehicle (PHV) drivers under peak-demand conditions, in our view.

Gaining a potential revenue stream from private-hire drivers

  • In addition, ComfortDelGro may eventually open its app to about 46,500 PHV drivers, thus extending its driver base beyond its c.12,100 taxi fleet.
  • ComfortDelGro could thus gain a new revenue stream from additional ride-hailing services extended to PHV drivers without having to expand its taxi fleet.

Still a beneficiary overall despite more street-hailing options

  • Though ride-hailing operators could apply for a new licence to offer street-hail services under a new regulatory framework, we believe Grab and Go-JEK could refrain from purchasing and owning their vehicles (part of the Street Hail Service Operator Licence requirements) in the short-term. In our view, they would focus on acquiring more users across all their business verticals (not just ride-hailing) via an asset-light strategy.
  • With c.60% share of taxi fleet in Singapore, coupled with options to offer their booking app platform to PHV drivers with dynamic fares, we deem ComfortDelGro as being a net beneficiary from these changes.

Maintain ADD

  • We maintain our ADD call on ComfortDelGro with an unchanged DCF-based Target Price (WACC: 7.5% LTG: 2%) of S$2.88 as we remain positive on its overall business outlook.
  • Re-rating catalysts include earnings-accretive M&A and better-than-expected earnings growth.
  • Key risks include a drag in earnings contributed from its acquisitions and keener competition from ride-hailing firms.

Colin TAN CGS-CIMB Research | Cezzane SEE CGS-CIMB Research | https://research.itradecimb.com/ 2019-05-07
SGX Stock Analyst Report ADD MAINTAIN ADD 2.880 SAME 2.880