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Uber collaboration would be a win-win one for ComfortDelGro against Grab: RHB

Michelle Zhu
Michelle Zhu • 3 min read
Uber collaboration would be a win-win one for ComfortDelGro against Grab: RHB
SINGAPORE (Aug 23): RHB Research is maintaining its “buy” call on ComfortDelGro (CDG) with an unchanged $2.60 price target, after the land transport company yesterday announced its potential formation of a strategic alliance with Uber Technologies in
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SINGAPORE (Aug 23): RHB Research is maintaining its “buy” call on ComfortDelGro (CDG) with an unchanged $2.60 price target, after the land transport company yesterday announced its potential formation of a strategic alliance with Uber Technologies in Singapore.


See: ComfortDelGro and Uber in exclusive talks over possible alliance

To recap, CDG on Tuesday signed an exclusivity letter with Uber for discussions in relation to forming an alliance between the two companies – which may involve collaboration on the management of fleet vehicles and booking software solutions in Singapore, including CDG’s taxis being made available on Uber’s mobile application.

CDG’s management is in the view that the alliance, should it materialise, will strengthen the company’s position as a major mobility service provider in Singapore.

In a Wednesday report, analyst Shekhar Jaiswal opines that the partnership with Uber could alleviate CDG’s weakness in its taxi business by improving utilisation rates, thereby arresting the decline in fleet size as seen in the group’s recent 2Q set of financial results.

He continues to like the stock for its strong free cash flow (FCF) generation, its ability to undertake inorganic growth with its net cash balance sheet, and its anticipated gradual rise in dividend payout ratio, which translates into 4.4-5.4% yields.

Nevertheless, Jaiswal says an increase in taxi bookings for the group would still ultimately depend on the competitiveness of CDG’s taxi fares in comparison to Uber’s own service offering, as well as the seamless integration of its taxi booking system with Uber’s own booking software solution.

While CDG has also faced elevated competition from Grab, the analyst notes that Grab’s fares have increased since its recent collaboration with local taxi companies such as SMRT Taxis – which Jaiswal says may have been necessary to bridge the fare differential between Grab’s cheaper private car service offerings, and the more expensive fares for its taxi partners.

“We would like to remind readers that the taxi booking option was available on Uber and Grab apps, when they were first launched in Singapore. However, cheaper fares offered by Uber and Grab for their own private car fleets and duplication of the booking system for taxi drivers led to the service being withdrawn by both ride hailing service providers,” says Jaiswal.

“The addition of ComfortDelGro’s taxi fleet to Uber’s booking system should not only increase the latter’s fleet size, but also make its service offering comparable to Grab’s services. We note that Uber has largely been resorting to cheaper fares to compete with Grab in Singapore,” he adds.

RHB is projecting a total turnover of $4.1 million in FY18F for CDG, with recurring net profit growth turning around to 3.3% from -1.4% in FY17F.

“While its success remains dependent on multiple factors, we view ComfortDelGro’s willingness to collaborate with Uber positively… A win-win collaboration with Uber Technologies on its Singapore taxi business and likely winning the tender for operating the Thomson East Coast Line would be positive for its earnings,” concludes the analyst.

For FY17F, ComfortDelGro is trading at 15.0 times earnings with a dividend yield of 4.7%.

As at 9.50am, the counter is trading 8.3% higher at $2.35.

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