SINGAPORE (July 6): DBS says that the path and eventual outcome of the Grab-Uber merger remains uncertain.
This comes on the back of Thursday's announcement by Competition and Consumer Commission of Singapore (CCCS) that the Grab-Uber merger has significantly reduced competition in the ride-hailing business in Singapore.
According to CCCS, the transaction has infringed section 54 of the Competition Act (prohibiting mergers that have resulted, or may be expected to result, in a substantial lessening of competition in Singapore).
The CCCS is proposing to fine the two parties, following several complaints from both riders and drivers regarding an increase in effective price post-transaction after the merger.
CCCS also proposed several remedies for Grab to restore the market competition.
At this juncture, the CCCS is inviting public feedback on the proposed remedies as to whether these are workable and sufficient to address the lessening of competition arising from the transaction.
See: Singapore says Grab-Uber merger lessened competition, proposes penalties
However, Grab disagrees with CCCS’s decision and analysis, citing that it has “taken a very narrow approach in defining competition”.
See: Grab disagrees with competition watchdog analysis on merger
In a Friday report, analyst Andy Sim says, “Overall, in our view, having seen a full cycle of entrants and eventual exits (since 2013 with Uber's entry) of private hailing app players, we believe that a strong escalation of competition and reversion to high incentives and discounts (where participants incur sustained losses) seem unlikely.”
The analyst believes that the current case suggests taking over or buying out competition to achieve profitability seems to be out of the picture, leaving a “death-match”.
In addition, in view of a relatively small market in Singapore, the business case for new entrants may seem limited vis-à-vis other larger Asean markets.
However, this may be open a window of opportunity for Go-Jek, given its financial backing.
See: Will Go-Jek's expansion into new markets bring back ride-hailing competition?
“We believe this could also provide an opportunity for ComfortDelGro to have a more dominant presence in the private car rental space, assuming it is able to partner Go-Jek, similar to its original plan with UberFlash/acquisition of 51% stake in Lion City Rentals (LCR),” adds Sim.
The analyst also reckons that this may pose some risks for ComfortDelGro and another three-cornered fight between Grab, Go-Jek and Comfort may emerge, but this seems unlikely at this juncture.
The analyst believes that rationality would prevail as evidence shows that this is not sustainable for participants and that ComfortDelGro would likely now be more receptive to partner a ride-hailing platform.
“We are maintaining our view that we have seen the stabilisation of taxi fleet, and should be on the cusp of increase,” says Sim.
Since the exit of Uber, drivers have been reverting back to taxi rentals and more taxi drivers have been taking their vocational licence (TDVLs).
Furthermore, channel checks suggest that drivers now recognise that income earned through private-hire car-chauffeur services before incentives is not materially better than that generated by providing taxi services.
As at 12.40pm, shares in ComfortDelGro are trading 9 cents or 3.8% lower at $2.28.
