Nomura: Uber-Grab deal ‘significant positive’ for ComfortDelGro

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

Grab’s deal to acquire ride-hailing company Uber’s Southeast Asian assets is a “significant positive” for ComfortDelGro’s taxi business, Nomura said, adding it was putting its earnings estimates for the Singapore company under review.

“Overall, we see this development as limiting downside for CDG’s Singapore taxi business,” Nomura said in a note dated Tuesday. It noted that last year, ComfortDelGro retired 3,577 taxis in Singapore, or around 20 percent of the end-2016 fleet size. “Given intense competition in the Singapore taxi market, we earlier expected overall fleet decline rate for Singapore taxi to remain in high teens but are reviewing our assumptions now.”

But while Nomura said it chances of another sharp drop in the Singapore taxi fleet were “minimized,” it didn’t expect ComfortDelGro to invest heavily in rebuilding fleet size.

For one, it noted that the weighted average COE for the Singapore fleet has risen as taxis purchased with lower COEs were retired, pressuring margins. Additionally, the public transportation footprint in Singapore has been expanding, with new MRT lines, it said.

“We see little scope that taxi rentals may rise. Lastly, we believe the bulk of the gains from Uber’s exit will accrue to Grab,” it said.

It kept a Reduce call with a S$1.85 target price, which it said was based on 13 times 2018 price-to-earnings. The stock is trading at 14.3 times 2018 price-to-earnings, it said.

The stock was down 0.99 percent at S$2.00 at 10:23 A.M. SGT on Wednesday, in line with the Straits Times Index’s 1.13 percent fall.