Any Uber-Grab deal seems certain to dent ComfortDelGro: Daiwa

Street scene with bus stop in Geylang neighbourhood in SingaporeStreet scene in Singapore

ComfortDelGro’s earnings may take a hit if a reported potential deal for ride-hailing company Grab to acquire rival Uber’s Southeast Asian operations goes through, Daiwa said in a note dated Thursday

Daiwa cautioned that it wasn’t yet clear if the deal was for all of Uber’s Southeast Asian operations, or just some markets; it also noted it wasn’t clear why Uber would have struck a tie-up with CDG if it was already trying to exit Southeast Asia.

“Looking ahead, should the acquisition deal go through, we believe Grab could continue to seek to gain more market share from CDG by continuing to attract the latter’s drivers onto its platform, particularly as it will be able to roll back fare discounts to ultimately boost its drivers’ earnings – a key gripe of taxi drivers who have remained with CDG despite the higher rental rates,” Daiwa said.

In that scenario, Daiwa expected further downside risk to its forecasts for CDG’s revenue and operating margins for the Singapore taxi segment.

Downside risks

“The company will likely either have to continue allowing its fleet to shrink to maintain utilisation rates, or reduce effective rental
rates to ensure driver retention on its platform,” it said.

Daiwa is forecasting a 3.2 percentage point decline in CDG’s taxi segment operating margin over 2017-20, and for its contribution to overall operating profit to fall to 20 percent by 2020 from 33 percent in 2017, amid a longer-term structural decline from industry competition.

But Daiwa noted that it was too early to draw any conclusions as any potential consolidation in the private hire market in Singapore could be stymied by government regulation to promote more competition.

It rates the stock at Hold with a S$2.04 target price.

The stock was down 0.5 percent at S$2.05 at 12:45 P.M. SGT on Friday.

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