ComfortDelGro - RHB Invest 2020-12-07: Lower Competitive Intensity In Taxi Business


ComfortDelGro - Lower Competitive Intensity In Taxi Business

  • Recent news flow on the merger between Grab and Gojek, if confirmed, should lead to lower competitive intensity in the taxi and private-hire car business in Singapore. Moreover, with the decline in demand for transport services, growing contributions from food delivery services and the receipt of a full digital bank licence, we believe Grab could realign its focus away from the transport business in Singapore. This, we believe, should be positive for ComfortDelGro (SGX:C52)’s taxi business.
  • BUY ComfortDelGro, new S$1.90 target price from S$1.70 target price, 16% upside with 5% 2021F yield.

Decline in competitive intensity for taxi business.

  • Last week, amidst the prolonged debilitating impact of COVID-19, HDT Singapore (HDT) announced the closure of its taxi business for good. HDT ran the smallest fleet of 117 taxis as at end October (industry size: 16,012 taxis).
  • Recent news reports suggest that Grab and Gojek have made substantial progress in working out a deal to combine their businesses. This merger, if confirmed, should reduce the competitive intensity in Singapore’s taxi and private-hire car landscape, which has already witnessed a decline in demand this year due to the pandemic.

Grab may realign its focus on non-transport businesses.

  • Earlier this year, Grab CEO Anthony Tan noted that gross merchandise value (GMV) for its transport business was down by a double-digit percentage. In contrast, the GMV for its food business had grown rapidly from a relatively low base.
  • While Singapore has a limited market size due to its small population, COVID-19 has accelerated the food delivery business.
  • The recent winning of the full digital bank licence by the Grab-Singtel consortium would also mean that Grab will be busy building its financial services business over the next two years, as it plans to launch the digital bank in early 2022. Even for its transport business, Grab may introduce a platform fee of S$0.30 for its ride-hailing in the next few months, as it looks to cover operating costs and look after the welfare of its drivers in a sustainable manner.

Maintain our strong earnings growth expectation for 2021.

  • We raise ComfortDelGro's 2021-2022 earnings estimates by 3-4% to account for a slightly higher utilisation rate for ComfortDelGro’s taxi fleet. We maintain that gradual normalisation of business activities in Singapore and the company’s other key overseas markets should support an improvement in public transport ridership and a stabilisation of the taxi business during 2021.

Compelling valuation.

Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-12-07
SGX Stock Analyst Report BUY MAINTAIN BUY 1.90 UP 1.700