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Broker's take: DBS keeps 'buy' on ComfortDelGro amid optimism about new ride-hailing rules

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DBS analyst Andy Sim is keeping his "buy" call and S$2.56 target price on taxi company ComfortDelGro after Singapore's Land Transport Authority announced a proposal to license ride-hailing app services.

DBS analyst Andy Sim is keeping his "buy" call and S$2.56 target price on taxi company ComfortDelGro after Singapore's Land Transport Authority announced a proposal to license ride-hailing app services.

In a research note, Mr Sim called the key proposals "positive and long-awaited" and added that they could be a blessing for ComfortDelGro, which operates Singapore's largest taxi fleet.

Singapore authorities had, on Thursday, unveiled plans to streamline the rules for both ride-hailing firms and taxi operators, to protect consumer and driver welfare and keep the market open and competitive.

"We understand that taxi operators have indicated that they are subjected to more stringent regulations and costs, vis à vis private-hire vehicles," Mr Sim noted, citing the minimum age requirement for taxi drivers - a rule that has no equivalent in the ride-hailing and private-hire industry.

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Mr Sim said the plans for a new regulatory framework for the sector "should bode well for the company's taxi operations".

"Our view is also supported by our expectations that ComfortDelGro will deliver year-on-year earnings growth in Q4 2018 and FY2019F," he added. ComfortDelGro most recently posted a net profit of S$219.8 million for the nine months to Sept 30, 2018, down by 9.2 per cent on the year before.

Mr Sim's optimism over the bottom line came on a bottoming-out of Singapore taxi fleet numbers, contributions from recent acquisitions, and a public transport fare increase that kicked in on Dec 29, 2018. ComfortDelGro, which also operates in markets such as China, Britain and Malaysia, announced in November 2018 that it would buy Australian bus operator Buslink for A$190.9 million.

"There have been concerns on increased competition from the private-hire car companies with the recent entry of Go-Jek, but we do not expect the situation to revert to the times of Grab/Uber," Mr Sim added, referring to fares' race to the bottom before the regional merger of ride-hailing rivals Grab and Uber.

ComfortDelGro went into the mid-day trading break higher by S$0.09, or 4.02 per cent, at S$2.33.