SINGAPORE (Jan 18): Singapore's taxi sector is slowly but surely moving towards a more stable market even though conditions stay tough, says UOB Kay Hian.
The research house believes the sector is gradually moving towards a more stable market. ComfortDelGro's proposed alliance with Uber Technologies is also expected to be accretive.
"Maintain "buy" and PE based-target price of $2.25," says analyst Thai Wei Ying in a Thursday report.
Thai says the sector has been consolidating and she expects some stability in the next 6-12 months. This is indicated by slower growth of private car hire fleets.
The latest LTA data shows growth of rental cars has tapered to 34% y-o-y in Nov 17, vs Jan 17 where growth tracked 76% y-o-y.
Total industry taxi fleet has also shrunk 18% to 23,439 taxis as at Nov 17 from the peak of 28,736 in Dec 14.
"In our view, the proposed alliance of ComfortDelGro and Uber could also help bring market stability," says Thai.
Under the agreement, ComfortDelGro will acquire a 51% stake in Uber’s wholly-owned car rental subsidiary in Singapore, Lion City Holdings (LCR).
Uber will retain the remaining 49%. However, the transaction is still subject to regulatory approval from Public Transport Council (PTC) as well as the Competition Commission of Singapore (CCS).
Any impact will only be from 2018 onwards.
"In our estimates, the alliance could enhance ComfortDelGro's 2018 net profit by up to 5%. However, we have not changed our estimates, pending the approvals from the regulatory authorities," says Thai.
Overall, UOB views the tie-up positively and sees it as a necessity as it gives ComfortDelGro an inroad to the ride-hailing business, where ComfortDelGro could raise driver retention rate through diversification and defend market share.
And although there have been some concerns about the potential anti-competitive impact that may arise as a result of the deal and that approvals may not be secured, Thai believes the worries are not warranted, given that ComfortDelGro will still keep its booking platform which continues to allow passengers to opt for metered as well as a flat fare structure for taxis.
Additionally, following the alliance, drivers will have more options to hire either rental cars or taxis. "We understand the taxis in ComfortDelGro's fleet can opt to be on the Grab platform."
Shares in ComfortDelGro are down 2 cents at $2.01 or 15 times FY18 earnings.
