CGS-CIMB: Go-JEK threat to ComfortDelGro taxi business appears over-hyped

ComfortDelGro taxiComfortDelGro taxi

Despite the entry of Indonesian ride-hailing player Go-JEK into Singapore’s market, ComfortDelGro’s taxi business has been resilient and it looks set to expand its fleet, CGS-CIMB said in a note on Thursday.

“We think investor concerns over ride-hailing companies posing a threat to taxi companies are over-hyped and ComfortDelGro is now in a better position than it was a year ago,” CGS-CIMB said, adding it expected the company to begin expanding its fleet again.

For one, it’s more lucrative to be taxi or Grab driver than it is to drive for Go-JEK, the note said.

Singapore generally has a shortage of professional drivers, with ride-hailing, taxi, and e-commerce delivery companies chasing a limited pool of workers.

“Many taxi drivers’ wages are generally higher than those of private hire car (PHC) drivers. A Grab/Go-Jek driver may have to work longer hours to earn what a taxi driver earns in a 10-hour shift,” it said, pointing to longer wait times between rides. “Go-JEK is also much less effective in enticing taxi drivers to switch after the incentives cut on 19 January” of around 50 percent.

In addition, the brokerage said there have been user complaints about Go-JEK service, including drivers cancelling rides and long waits for pickups.

ComfortDelGro also has its own booking app, which helps it compete with ride-hailing companies, and to lower the idle time for its drivers, the note said.

For the fourth quarter, CGS-CIMB estimated ComfortDelGro would report net profit of S$76 million, down 4 percent on-quarter but up 27 percent on-year on a recovery in taxi EBIT, or earnings before interest and tax. But it trimmed 2019-2020 earnings per share forecasts by 2 percent on expectations of a slower taxi-fleet rampup.

It called the stock a high conviction pick, keeping an Add call with a S$2.74 target price.

The stock was up 2.15 percent at S$2.38 at 1:34 P.M. SGT.