ComfortDelGro

ComfortDelGro Hold

May 28 close: S$2.45

Target price: S$2.37

CGS CIMB, May 25

COMFORTDELGRO (CD) said it was parting ways with Lion City Rental (LCR) given that Uber's exit renders the tie-up less attractive. To recap, in December 2017, as part of CD's tie-up with Uber, CD announced the planned acquisition of a 51 per cent stake in the operator of Uber's LCR for S$642 million.

Management reiterated that it still intends to enter the private hire vehicle space as it foresees increasing convergence of private hire vehicles and taxis in the personalised mobility market.

Go-Jek, an Indonesian ride-hailing company, recently confirmed that it plans to enter the Singapore market in the coming months and invest US$500 million in international expansion that includes Vietnam, Thailand and the Philippines. Go-Jek also said that it will take the approach of providing technological support to its chosen partner countries and leave the local founding teams to run the companies that Go-Jek will help set up.

Recent local news reports quoted unnamed sources as saying that CD and Go-Jek are in talks for a tie-up. In our view, Go-Jek's passive management style could appear to be attractive to CD. However, the reports remain unsubstantiated.

We maintain our forecasts as we had not incorporated any earnings from the proposed tie-up with LCR. While the taxi business headwinds have moderated, we still see a lack of meaningful growth catalysts for CD.

With total returns of around 2 per cent for the stock, we maintain our "Hold" call and DCF (discounted cash flow)-based target price of S$2.37.

Upside risks include possible earnings-accretive M&As and higher dividends. Downside risks include a pick-up in private-hire car competition, which could lead to a deterioration in taxi earnings again; and lower public transport profits.

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