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Hot stock: ComfortDelGro up on Uber deal; analysts keep ratings unchanged
LAND transport giant ComfortDelGro's decision to take a majority 51 per cent stake in Uber's car rental business Lion City Holdings has helped its stock rise by 4.2 per cent in active trading on Monday, with the counter trading at S$1.99 as at 12.10pm.
The deal, valued at about S$642 million with a S$295 million cash consideration, ended months of speculation on how the two partners will team up in the hotly-contested sector.
The move will put ComfortDelGro's taxis and Lion City Rental's (LCR) private-hire cars - totalling 14,000 units - under a centralised fleet management system, which will handle the despatching of vehicles to customers.
Analysts mostly praised the move but maintained their outlook on the stock, citing pending regulatory approval and uncertain growth potential for ComfortDelGro's taxi business as reasons.
Broker CIMB Research kept its "hold" rating on the stock with a S$2.15 target price, saying that growth and earnings for the land transport giant's taxi fleet may be "unlikely" despite potential benefits to the deal which include a lower taxi idling rate, and uplift in earnings for ComfortDelGro's Automotive Engineering Services (AES) and car leasing & rental (CLR) divisions.
UOB Kay Hian maintained a "buy" outlook with a target price of S$2.25, citing a 5 per cent increment to ComfortDelGro's earnings in the 2018 financial year.
"We are positive on the JV (joint venture) and deem this alliance necessary in the long run as it gives CD (ComfortDelGro) inroads into the ride-hailing market where CD could raise driver retention rate through diversification and defend market share," the broker said in a research note.
Analyst Phillip Securities also maintained its "buy" recommendation at a S$2.69 target price, saying access to the burgeoning PHV (private hire vehicle) business would offset some of the decline in ComfortDelGro's taxi segment.
Phillip Securities also added the combined fleet of a possible 28,300 vehicles with the ComfortDelGro/LCR tie-up would be far larger than the alliance fellow PHV company Grab has with the other four taxi companies - Trans-Cab, SMRT, Premier and Prime, which numbers 9,555 taxis.
"GrabRentals also partnered players such as Strides Transportation and HDT Singapore Holding, which we believe have a combined fleet that is far less than LCR's 14,000 vehicles," Phillip Securities added.
However, it said that the asset-heavy vehicle rental business will incur more capital expenditure, in contrast to Uber's asset-light app-based platform, with ComfortDelGro agreeing to "pay for more vehicles when utilisation increases".