Strides-Premier merger is no threat to ComfortDelGro: analysts

ANALYSTS from UOB Kay Hian (UOBKH) and DBS Research remain positive on ComfortDelGro despite the announcement on Thursday (Apr 13) that two of its competitors, SMRT-owned Strides Taxi and Premier Taxis, will be merging to form Singapore’s second-largest taxi operator.

With ComfortDelGro maintaining its command over the majority market share, analysts see no downsides from the merger. The newly formed Strides Premier will own 2,502 taxis, lower than one-third of ComfortDelGro’s fleet of 8,741 taxis.

Instead, analysts believe that the consolidation could bring benefits to ComfortDelGro.

The consolidation was “not surprising” to UOBKH’s Llelleythan Tan, who on Friday cited stiff competition from the rise of the ride-hailing market, shortage of taxi drivers in Singapore, and growing inflationary pressures.

He noted that the Strides-Premier merger may result in their taxi drivers seeking alternative options and joining ComfortDelGro for its large market share and business stability.

ComfortDelGro’s taxi segment margins are expected to improve after the group reduced its daily taxi rental rebates from 15 per cent to 10 per cent this month. Taking this into account, Tan increased his estimates for the transport company’s earnings for FY2023 to FY2025 by between 3 per cent and 6 per cent.

DBS noted that the merger could potentially reduce competition and promote profitability, resulting in a more sustainable business environment for the industry.

In a note on Friday, the research house said it believes the company’s share price has bottomed out. DBS has a “buy” recommendation on the stock, with a target price of S$1.66.

“With (ComfortDelGro’s) share price trading at below one times price to book, (and) with improving profitability, we believe confidence should return over time,” said its analysts.

Both DBS and UOBKH also view ComfortDelGro’s implementation of a 5 per cent commission on ride-hail fares positively. ComfortDelGro collects this commission from drivers, adding to the company’s revenue. UOBKH’s Tan said it is not likely to cause taxi drivers to switch to ride-hailing competitors such as Grab and Gojek.

He expects ComfortDelGro to increase its current commission rate in the second quarter of 2023 to keep up with the rising ride-hailing market.

Tan did, however, flag potential risks posed by ComfortDelGro’s two expiring bus packages that have been put up for tender. Should the company get re-awarded the two contracts at lower service rates or lose the tenders, he anticipates its earnings to drop for both 2023 and 2024.

UOBKH maintained its “hold” call on ComfortDelGro, with the same target price of S$1.29.

Shares of ComfortDelGro were trading flat at S$1.20 as at 2.14 pm on Friday.