SINGAPORE (Mar 21): OCBC says encouraging indicators pointing to a more stabilised earnings environment for Singapore taxi operators were seen in the recent few months leading up to Jan 18.
Coupled with the prospect of higher taxi and train fares, this bodes well for ComfortDelGro whose stock is down 20% in the past year.
OCBC is maintaining its "buy" on ComfortDelGro with $2.25 fair value.
In a Wednesday report, analyst Eugene Chua says industrywide mileage numbers have improved while fleet numbers have remained stable.
Chua notes the three straight months and five straight months of y-o-y growth in industry average engaged mileage recorded for one-shift taxis and two-shift taxis, respectively.
This indicates earnings for taxi drivers are stabilising with higher mileage driven, says Chua.
In addition, Chua also notes that m-o-m growth in rental cars were more subdued while the rate of decline in taxi fleet size slowed down for the more significant taxi operators in Singapore.
These trends to a more stabilised environment for taxis and private-hire car (PHC) services.
"We believe a more stabilised environment is positive for ComfortDelGro taxi business as it translates to a more stabilised taxi fleet hire-out rate as well," says Chua.
The analyst also highlighted two points made during the Singapore Budget 2018 debate which are positive for ComfortDelGro's outlook.
Firstly, fares are likely to rise with the Transport Minister stating that commuters are likely to have to share in the cost rise as the government continues to invest in buses and trains to improve the public transport service standards in the coming years.
"Fare increases would bode well for ComfortDelGro's rail operations of both Downtown Line and North-East Line," says Chua.
Secondly, given how fast the industry has grown over the past few years, the government is also studying how to license PHC services to have sufficient regulatory oversight.
This, in Chua's view, would help to further level the playing field between traditional taxi business and PHC services.
As at 12.30pm, shares in ComfortDelGro are trading at $2.02 or 15.1 times FY18 earnings.
The next stock catalyst should be regulatory approval of a partnership with Uber, says OCBC.
