This island is famous for the Singapore sling, a pink cocktail that was patented in Raffles Place. However, when I arrived in Singapore in 1997, it seemed that the taxi system should be more famous.
Singapore’s taxi operators were using a satellite tracking system. It instantly connected passengers and taxis. You could dial from a landline. The number plate would be sent automatically. The taxi would arrive promptly. One could call a taxi from any part of the island using a mobile phone.
Today, ordering a taxi using satellite technology is common. However, in 1997 it was unheard of. No other city in the world had such an advanced taxi system.
In London and New York, the only way that you could book a taxi was through a manual booking system. They were also restricted to certain areas. Brooklyn, for example, had 35 taxi companies that could be booked. One could wait for hours just to book a taxi.
Singapore’s transport system could gain prominence for a different reason now. Grab Holdings, the Singapore-based ride-hailing and food delivery company, is seeking a US listing. It may raise at least US$2 billion ($2.7 billion), making it one of the largest Asean listings in the US.
Grab is valued at US$16 billion, according to the previous funding round. It had raised more than US$10 billion from investors including SoftBank and Mitsubishi. The company has plans to enter digital banking in Singapore.
Grab was co-founded by Malaysian persistent entrepreneur Anthony Tan, who was a graduate of Harvard Business School in 2012. He noted that hailing a cab in Kuala Lumpur was chaotic. It was unreliable and unsafe. Smartphones were a novelty that had immense prospects.
Tan devised an app that would connect riders with taxis. It found instant success in Malaysia. In 2013, it launched in Singapore, where it works as a complement to the existing taxi booking system. It then launched in Philippines, Thailand, Vietnam and Indonesia.
In each case, it outspent Uber, the global leader. It had more money to devote to Asean than Uber. Eventually, it bought Uber’s Asean business.
Today, there are two wings to Grab’s business — ride-hailing and food delivery. It operates in 500 cities in eight countries in Asean. More than 40 million people use the service.
Grab’s virtue lies in the synergy between two disparate businesses — ride hailing and food delivery. The US giants Uber and Lyft have suffered in the pandemic. Transport has collapsed and they are 45% below their IPO level. The boost in ride-hailing has evaporated.
Grab, on the other hand, has ventured into food delivery. It has used its network of ride-hailers to expand in this space. Its food delivery growth in 2020 may have been 40% y-o-y, according to industry sources.
As with others in the space, Grab has bled cash. But that may be coming to an end.
Grab has stated that the ride-hailing is operationally profitable in all its markets. The food delivery business is expected to generate operating profits by the end of 2021.
The Grab IPO would expose investors to ride-hailing and food delivery in emerging markets. There are many players providing both, but Grab is a rare bird with both.
However, as Grab goes to market, one should not forego the tried and tested. ComfortDelgro, Singapore’ leading taxi operator, was one of the pioneers of the satellite booking platform in 1980s.
The stock has been ravaged by the pandemic, as investors feared the transport slowdown. Comfort has two-third market share in Singapore’s taxi market.
Its taxi revenue fell in FY2020 due to the “circuit breaker”. However, in 4QFY2020 taxi revenue seems to have risen as people returned to their offices. Its Cablink booking system is still unmatched, as it was in 1997. Some customers are prepared to pay a premium to Comfort, because their drivers know the roads better.
Singapore is a unique taxi market, because an average car can cost $67,000. This means that Grab needs to rent out cars to the drivers, unlike in any other market. Comfort has a stronger moat. At half its 10-year P/B, it may be worth a ride. Grab’s IPO may soar, but investors should not give up on Comfort taxis.
Nirgunan Tiruchelvam is head of consumer sector equity at Tellimer (Exotix Capital).
