ComfortDelGro soars on news of talks with Uber

Singapore

SHARES in bus, rail and taxi operator ComfortDelGro were hotly traded on Wednesday, rising 8.8 per cent or 19 cents to S$2.36. More than 56 million shares were traded - a high not seen for more than four years.

The firm had announced the day before that it was potentially forming a strategic alliance with ride-sharing giant Uber. The collaboration may include "management of fleet vehicles and booking software solutions in Singapore, including the company's taxis also being made available on Uber's app," it said.

After the announcement, market concerns on intense competition from ride-sharing firms might have eased somewhat, analysts said. ComfortDelGro could gain from its drivers enjoying more bookings and higher income, and from servicing Uber's fleet of vehicles, they said.

Credit Suisse maintained its "outperform" call with a target price of S$3.20. "We draw parallels between this alliance and the partnership of Blue Bird and Go-Jek in Indonesia in early 2017, which has since supported higher driver productivity," it said.

Citi Research kept its "buy" call with a target price of S$2.86.

Discounts and subsidies have distorted ridership numbers, leading to the growth of private-hire vehicles and a lower number of taxis, it said. Investors can watch out for developments that signal rationality returning to the market, it said.

"We believe that a modal shift towards trains and buses will mitigate declines in taxi earnings over time," Citi added.

OCBC Investment Research kept its "buy" call and target of S$2.70, noting that a collaboration would help the firm stem its taxi fleet decline and boost its maintenance business.

CIMB Research was more cautious, keeping its "hold" recommendation and target price of S$2.46.

"Pending the success of this collaboration, taxi profit continues to shrink and we keep to our view that the competition landscape is still stiff, as taxis and private cars co-exist in Singapore," it said.

DBS Group Research kept its "hold" call and S$2.33 target. The move lacks details but seems positive, it said. "This move could also signal to the market that ComfortDelGro's management is acting on market changes, and are looking for ways to counter the challenges."

Among the most bearish was Nomura, keeping its "reduce" call and target price of S$1.98.

Valuations remain expensive as earnings visibility remains low, it said. Its target price was already based on 13 times 2018's forecast earnings, a multiple only slightly above the 9-12 times that peers in the developed world are trading at.

In the short term, taxi utilisation could improve for ComfortDelGro. But in the long term, Uber and Grab will continue to build on their strong position and the market position of ComfortDelGro's taxi booking app will weaken further, Nomura said.

"Will ComfortDelGro allow Uber to market its vehicles on its app and under Uber pricing? It is (also) unclear how drivers will react," it said.