(Oct 11): CIMB-CGS Securities says potential private hire car entrant Go-Jek should not be a worry for ComfortDelGro, at least in the immediate term.
With the lack of a sizeable domestic app user base providing ample demand for taxi drivers to switch over, Go-Jek will need to go after Grab’s private hire car (PHC) driver base first to form the supply, says CIMB-CGS.
Still, there is the risk that a revival of PHC competition could eventually hurt ComfortDelGro’s taxi earnings in the longer term.
In a Thursday report, CIMB-CGS’s analyst Colin Tan sees the possibility of a repeat of an exodus of taxi drivers averaging 380 per month over Jul-Dec 2017 that could reverse the gains in ComfortDelGro’s taxi fleet over the longer term.
Although Tan says the chances of this happening is rare, he expects a 4-6% decline from ComfortDelGro’s base FY19-20F EPS should PHC players start aggressively entice taxi drivers to cater to rising demand from app users. And the earliest this could happen is FY20F.
Unlike Grab which has a single app that can be used in different countries, Go-Jek partners local founding teams to run its overseas operations and has a separate ride-hailing app for each market.
Tan thinks Go-Jek will launch a separate app for its Singapore operations as well, making it more challenging to roll out new features and security fixes across its different apps. If the user experience is found to be lacking, this may limit Go-Jek as a serious PHC competitor.
CIMB-CGS estimates ComfortDelGro’s 3Q18 net profit coming in at $77 million (+3% qoq, -4% yoy) amid expansion of its Singapore taxi fleet.
As at end Aug, ComfortDelGro’s taxi fleet in Singapore numbered 12,677, marking two straight months of increase from 12,535 as at end June. ComfortDelGro’s could also benefit from a better-than-expected fare hike which could lift its rail operations back to the black sooner.
“We retain our ‘add’ call as we are holding out our base-case scenario assumptions. Our DCF-based target price of $2.75 remains unchanged though we trim FY18-20F EPS due to higher minority interest assumptions,” says Tan.
Year to date, shares in ComfortDelGro are up 10.4% to $2.22 as at 9.29am.
