UPDATE: Will ComfortDelGro be hit by Go-Jek’s Singapore entry? Analysts differ

ComfortDelGro taxi in SingaporeComfortDelGro taxi in Singapore

Ride hailing company Go-Jek may be preparing for its launch in Singapore, but analysts differed on whether incumbent taxi operator ComfortDelGro would face much of a hit.

The Straits Times reported on Wednesday that Go-Jek had partnered with six car rental firms to supply both drivers and vehicles as it prepared to enter the Singapore market next month.

Daiwa noted that this news ran contrary to expectations that ComfortDelGro and Go-Jek would tie-up in Singapore, which would have allowed the Singapore taxi operator to hedge against increased competition pressure.

“We remain wary of a return of irrational price discounting and driver rebates in the market,” Daiwa said in a note on Wednesday. It pointed to downside risks to its forecast of a 3.3 percent on-year recovery in ComfortDelGro’s taxi segment operating profit next year.

However, CGS-CIMB said the potential entry of Go-Jek as a private hire car (PHC) operator didn’t warrant concern in the near term.

“With the lack of a sizeable domestic app user base providing ample demand for taxi drivers to switch over (also considering taxis can still get rides from street hailing), Go-Jek will need to go after Grab’s private hire car (PHC) driver base first to form the supply,” CGS-CIMB said in a note on Thursday.

It also pointed to Go-Jek’s use of a different app for each overseas location, compared with Grab’s use of a single app across borders. That could make it more difficult to roll out new features and fixes across the different apps, potentially dimming the user experience, it said.

Under CGS-CIMB’s worst-case scenario, there was a possibility of a repeat of the exodus of taxi drivers — which averaged around 380 a month over July-to-December 2017 — could reverse gains in ComfortDelGro’s taxi fleet longer term, the note said.

In that scenario, its forecast for ComfortDelGro’s base earnings per share over 2019-20 would be cut by 4-6 percent, it said. But it added, it viewed the scenario’s chances as “remote,” and even then, only likely to play out in 2020 at the earliest.

CGS-CIMB kept an Add call with S$2.75 target price.


Separately, UOB KayHian called Go-Jek a “potential wildcard.”

While investors remain wary of Go-Jek’s launch, ComfortDelGro management appeared to indicate it doesn’t view the ride-hailing company as a serious threat for now, particularly as the Indonesian company is focused on being an Indonesian lifestyle app, UOB KayHian said in a note on Thursday.

UOB KayHian noted that Singapore’s market appeared to be past the Grab-Uber days, with competition de-intensified. A couple hundred out of the 1,200 new vehicles that ComfortDelGro has ordered appear earmarked to cater to former Grab/Uber drivers, it said.

“Coupled with the fact that Grab is raising prices, the price wars of past years are behind us and remaining incumbents have returned to
growing their businesses,” it said.

UOB KayHian rates the stock at Buy with S$2.59 target price, but noted that the stock appeared “priced for perfection,” and upside reflecting acquisitions earlier this year.

London buses

However, Daiwa pointed to a separate concern for ComfortDelGro earnings.

Amid a 12 percent decline in bus demand in central London over the past three years, the regulator was seeking to overhaul the bus network there, likely reducing bus frequency and routes, Daiwa noted.

“Given that CDG’s Metroline runs around 19 percent of London’s scheduled bus mileage, we think this could pose negative repercussions for its overseas bus business,” Daiwa said.

It kept a Hold call on the stock with an unchanged S$2.24 target price.

“We continue to advise investors to stay on the sidelines for now,” Daiwa said. “While we expect a gradual recovery in CDG’s underlying operations, heightening risks at some of its businesses pose some downside risks to our current forecasts. Meanwhile, it remains early
days for management to establish a track record for its new growth strategy.”

The stock was down 4.89 percent at S$2.14 at 14:03 SGT; Singapore’s Straits Times Index was off 2.95 percent at 13:48 SGT.

This article was originally published on Thursday 11 October 2018 at 14:06 SGT; it has since been updated to include UOB KayHian’s comments.

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