RHB Group Research’s Shekar Jasiwal has maintained his buy call on ComfortDelGro (CDG) with a raised target price to $1.90 from his previous figure of $1.70.
In a Dec 8 report, Jasiwal said recent news flow on the merger between Grab and Gojek, if confirmed, should lead to lower competitive intensity in the taxi and private-hire car business in Singapore.
He also noted HDT Singapore (HDT) announced the closure of its taxi business for good last week. HDT ran the smallest fleet of 117 taxis as at end October, compared to the industry size of about 16,000 taxis.
More notably, he highlighted the recent news reports that suggested Grab and Gojek have made substantial progress in working out a deal to combine their businesses. “This merger, if confirmed, should reduce the competitive intensity in Singapore’s taxi and private-hire car landscape, which has already witnessed a decline in demand this year due to the pandemic.” he says.
Moreover, with the decline in demand for transport services, growing contributions from food delivery services and the receipt of a full digital bank licence, he believes Grab could realign its focus away from the transport business in Singapore. This, we believe, should be positive for ComfortDelGro’s taxi business.
Jasiwal thinks Grab may also realign its focus on non-transport businesses, and cited Grab CEO Anthony Tan saying that gross merchandise value (GMV) for its transport business was down by a double-digit percentage.
In contrast, the GMV for its food business had grown rapidly from a relatively low base. While Singapore has a limited market size due to its small population, Covid-19 has accelerated the food delivery business.
The recent winning of the full digital bank licence by the Grab-Singtel consortium would also mean that Grab will be busy building its financial services business over the next two years, as it plans to launch the digital bank in early 2022.
Even for its transport business, Grab may introduce a platform fee of 30 cents for its ride-hailing in the next few months, as it looks to cover operating costs and look after the welfare of its drivers in a sustainable manner.
With the expected decline in competition, Jasiwal raises his 2021-2022 earnings estimates by 3-4% to account for a slightly higher utilisation rate for CD’s taxi fleet.
We maintain that gradual normalisation of business activities in Singapore and the company’s other key overseas markets should support an improvement in public transport ridership and a stabilisation of the taxi business during 2021.
As at 11.33am, shares of CDG were trading at $1.63, with an FY2020 price to book ratio of 1.4 and dividend yield of 1.5%.
