ComfortDelGro - Maybank Kim Eng 2019-06-17: Singapore Taxi Doesn’t Drive The Bus


ComfortDelGro - Singapore Taxi Doesn’t Drive The Bus

Taxi pressure likely in the price; HOLD

  • Although risks in Singapore’s taxi space continue to pile revenue and margin pressure on ComfortDelGro (SGX:C52), we believe our below-consensus -5% taxi-EBIT CAGR for FY18-21E already factors this in.
  • Expansion into overseas public transport remains key to its revenue and core-profit growth. Although we view its business restructuring and healthy balance sheet favourably, we think valuations are reflective of these positives.
  • Maintain HOLD and DCF-based (WACC 9.0%, LTG 1%) Target Price of SGD2.45.
  • Irrational taxi competition remains a risk to our outlook while significant acquisitions could provide upside.

Industry contraction continues…and will continue?

  • Based on Apr 2019 statistics from Singapore regulator LTA, industry and ComfortDelGro’s taxi fleets have contracted nearly every month so far this year. This likely reflects continued ride-hailing competition for drivers.
  • Of the LTA’s current review and consultation of P2P regulations, one proposal by two drivers’ associations (see report), will involve the issue of PHC licences only to Singaporeans above 30 years of age, similar to taxi licensing. This would limit the supply of available drivers in the market and theoretically empower them to press for more benefits from taxi or ride-hailing companies. Companies could opt to part-offset their cost pressure by giving less benefits to end-consumers/riders.

(Street) hail, hail the gang’s all here?

  • Part of the review process is the LTA’s own proposal to issue Street Hail Service Operator Licence (SSOL) (see report) that could enable ride-hailing companies that maintain a minimum fleet size to also accept street-hailing, not just app-based bookings.
  • Currently, about 70% or 650,000 taxi trips per day are street-hailed. Unlisted Grab says it has no plans for street-hailing while Go Jek is non-committal. On the flip side, ComfortDelGro has already implemented dynamic pricing (see report) for its app bookings as the lines between taxis and PHC continue to blur.

What matters most now

  • Amid taxi headwinds, ComfortDelGro has turned to its less-volatile public transport segment (i.e. bus and rail) and overseas exposure for growth and cash flows. This re-orientation underpins our 4% revenue and 2% core-profit CAGRs for FY18-21E.

Luis Hilado Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-06-17
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.450 SAME 2.450