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Broker's take: DBS says strong escalation of competition in Singapore ride-hailing space unlikely
DESPITE provisional findings from the Competition and Consumer Commission of Singapore (CCCS) that Uber’s sale of its South-east Asian business to Grab infringed the Competition Act, DBS Group Research is of the view that strong escalation of competition in the ride-hailing space is unlikely. The brokerage has also maintained that taxi fleet contraction in Singapore has stabilised.
DBS said in a research note on Friday: "Having seen a full cycle of entrants and eventual exits (since 2013 with Uber's entry) of private hailing app players, we believe that a strong escalation of competition and reversion to high incentives and discounts (where participants incur sustained losses) seem unlikely."
It attributed this to the low likelihood of buying out the competition to achieve profitability and the relatively small Singapore market when compared to other markets in the Asean region.
While proposed remedies offered by CCCS may open a window of opportunity to other ride-hailing apps such as Go-Jek, DBS analyst Andy Sim believes that this could also provide an opportunity for taxi operator ComfortDelGro to build "a more dominant presence in the private car rental space, assuming it is able to partner Go-Jek" in a deal similar to its previous partnership with Uber which included the proposed acquisition of a 51 per cent stake in Lion City Rentals.
However, risks to DBS's assessment are the possible emergence of a three-way fight for market share in the ride-hailing space between Grab, Go-Jek and ComfortDelGro.
"At this juncture, such an outcome is unlikely due to the unsustainable nature of such competition and ComfortDelGro is now likely to be more receptive to partnership with a ride-hailing platform," DBS said.
Moreover, DBS maintains that there is stabilisation in taxi fleet numbers, which it believes have bottomed out.
DBS said: "With the exit of Uber, there has been anecdotal evidence of the flow of drivers back to taxi rentals, and we have seen an uptick in taxi drivers’ vocational licence holders."
Furthermore, drivers now recognise that income earned through private-hire car chauffeur services (before incentives) are not materially better than those generated by providing taxi services, it added.