SINGAPORE (Mar 26): ComfortDelGro Corporation’s long-drawn plan to strike a strategic alliance with Uber Technologies could now be in limbo.
This comes after Grab today put an end to months of speculation and confirmed it will be acquiring Uber’s Southeast Asia operations.
See: Grab confirms acquisition of Uber's Southeast Asia operations; Uber CEO Khosrowshahi to join Grab's board
ComforDelGro in December had finally inked a joint venture agreement with Uber to take the heat off its taxi business, which has taken a beating on the rise in popularity of ride-hailing apps.
The strategic alliance, which even now is still under review by the Competition Commission of Singapore (CCS), would have seen CDG acquire a 51% stake in Lion City Holdings, a car rental subsidiary that is wholly-owned by Uber in Singapore.
Lion City Holdings in turn operates Lion City Rentals (LCR), which has a fleet of about 14,000 vehicles.
See: ComfortDelGro-Uber joint venture enters Phase 2 of regulatory review
But that deal could now be scuttled.
According to DBS Group Research analyst Andy Sim in a flash note on Monday, “the chances are low” that the ComfortDelGro-Lion City Holdings deal would proceed following Grab’s acquisition of Uber’s Southeast Asia operations.
Among other things, Sim says this could raise anti-competition concerns.
In addition, it would also be unlikely that CDG chooses to go through with the deal and be left holding the assets without the booking platform after UberFlash is terminated.
The way Sim sees it, there are multiple possible scenarios and various fluid factors at play, given multiple parties and potential regulations.
The most likely scenario, he says, would be the return of “market normalcy” without heavy discounting and promotion.
“With the exit of Uber, Grab is to become the dominant player among private hire car apps, thus ceding competitive pressure in Singapore and to refocus its efforts in [other] regional SEA markets, he says. “This would bode well for [ComfortDelGro].”
On the other hand, he says that, to further its ambition as a mobile payment app, Grab might also choose to intensify competition by using its transport app as a “touch-base” with consumers.
See: Grab launches lending services and insurance products
In this case, the increase in competition would be negative for ComfortDelGro, says Sim.
DBS is keeping its “hold” call on CDG with an unchanged target price of $2.12 while it monitors pending developments.
As at 4.19pm, shares of CDG are trading 8 cents up, or 4.0% higher, at $2.07. This implies an estimated price-to-earnings ratio of 15.9 times and a dividend yield of 5.4% for FY18.
