SINGAPORE (Jan 4): Although ComfortDelGro's tie-up with Uber is unlikely to be a game changer, OCBC says this will allow Uber app users to directly book ComfortDelGro taxis.
This should in turn help ease pressures on ComfortDelGro's fleet idle rate as this collaboration should lead to more ride requests.
"Keeping our forecasts unchanged for now, we maintain 'hold' on ComfortDelGro with $2.05 fair value," says lead analyst Eugene Chua in a Thursday note.
More than three months after ComfortDelGro entered into exclusive discussions with Uber in relation to a potential strategic alliance, ComfortDelGro announced last month that they have agreed to form a JV to leverage on each other’s expertise.
Under the agreement, ComfortDelGro will acquire a 51% stake in Uber’s wholly-owned car rental subsidiary in Singapore, Lion City Holdings, which operates Lion City Rentals (LCR) that has a fleet of roughly 14,000 vehicles.
The cash consideration for this acquisition is $295 million or 0.9 times NAV based on the value of about 12,450 vehicles, which will be financed by internal funds.
"We believe ComfortDelGro should not have face any difficulty financing this acquisition given its cash balance of $538 million and net cash position of $188 million, as at end 3Q17. ComfortDelGro has also agreed to pay for more vehicles when utilisation of the fleet increases," says Chua.
According to the announcement, post-acquisition, LCR will be able to benefit from CDG’s expertise in fleet management and operations while CDG’s taxi drivers will be able to receive ride requests on Uber’s app, which increases the taxi drivers’ potential earnings.
Indirectly, higher earnings will likely lead to lower fleet idle rate as fewer drivers would want to return their taxis or switch to fully become a private hire car driver.
"In our view, the key benefit ComfortDelGro derives out of this JV is the access to the Uber app, translating to a larger passenger base for ComfortDelGro's drivers, but at a cost of $295 million or more," says the analyst.
As at 3.07pm, shares in ComfortDelGro are trading at $2.02 or 15.7 times FY18 earnings.
