SINGAPORE (Mar 9): Maybank Kim Eng is maintaining its “buy” call on ComfortDelGro with a target price of $2.35.
This came on the back of Bloomberg yesterday reporting that Grab is seeking to acquire Uber’s Southeast Asian business.
See: Grab is said close to deal for Uber Southeast Asia business
Under terms of the proposed agreement, Grab would buy out Uber’s operations in certain markets in Southeast Asia and Uber will take a stake in Grab.
In a Friday report, analyst John Cheong believes that this is a positive move for Comfort if it happens in Singapore, as the consolidation could reduce competition in the taxi industry.
However, regulatory hurdles may block the deal, as they are against market dominance by a single player.
But if the deal goes through, the analyst thinks that several scenarios might play out.
In the first scenario, Comfort may continue to acquire Uber’s car-rental fleet and partners with Grab instead of Uber. Since the Comfort-Uber deal has not been closed due to pending regulatory approval, they might just renegotiate the terms.
See: ComfortDelGro stuck in a jam as competition watchdog extends Uber alliance review
In the second scenario, Comfort might straight up call off the deal with Uber and Grab will instead acquire Uber’s car-rental fleet along with Uber’s booking app.
However, Cheong believes that this is the less likely scenario as Grab’s current business model involves partnering with other vehicle-rental companies, instead of owning a large fleet of vehicles in-house.
In the third scenario, UberFlash should continue, as Uber's ride-booking app is likely to stay, following the acquisition of Uber by Didi Chuxing in China in 2016.
Meanwhile, the Ministry of Transport (MoT) in its budget debate yesterday raised two potential positive points.
First, a rise in rail fares – as commuters will be required to share the cost increase in improving service standards – should benefit the group, as it shares the fare revenue with the government.
“We estimate every 1% increase in rail fare will raise Comfort's FY19 EBIT by 0.05%,” says Cheong.
Second, tighter regulations in the private-hire car services, operated by Uber and Grab, could benefit the group’s taxi unit as it could further level the playing field.
As at 1.00pm, shares in Comfort are trading at $2.05, giving it a FY18 price-to-book ratio of 1.7 with a dividend yield of 5.1%.