SINGAPORE (June 8): Analysts say the restructuring of the ride-hailing industry after Uber’s exit from Singapore, as well as regulatory action coming into effect, will significantly level the playing field and have a positive impact on the taxi industry.

“User discounts and driver incentives for ride-hailing apps have been reduced since Uber exited the market,” says Phillip Securities Research analyst Richard Leow in a report on Friday. “As such, fare pricing has become more rational and there has been some flow of drivers back to taxis.”

“The worst appears to be over for the taxi industry,” he adds. “The outlook is positive and improving.”

The brokerage is maintaining its “overweight” rating on the land transport sector.

At the same time, it is keeping its “accumulate” call on land transport operator ComfortDelGro Corporation and raising its target price to $2.69, from $2.48 previously.

The way Leow sees it, CDG’s purchase of new taxis and bookings growth are an indicator that the worst is over.

CDG reported uptick in taxi bookings made through its call centre and phone app for the first five months of 2018. Taxi bookings grew almost 9% year-on-year in May – the biggest y-o-y jump since September 2014.

Meanwhile, CDG in May purchased 200 new hybrid taxis, and called for a tender to supply 500 more hybrid taxis. The 700 new taxis in total represent a 5.5% growth to the Comfort and CityCab fleet.

Following the exit of Uber, CDG has reached a mutual agreement with Uber to terminate the sale and purchase agreement for the proposed acquisition of a 51% stake in Uber’s car rental arm in Singapore, Lion City Holdings, which in turns operates Lion City Rental (LCR).

“We view this termination of LCR acquisition positive for CDG, as it frees up $295 million in cash consideration that would have been spent on assets that may become unproductive without the partnership with Uber,” says OCBC Investment Research analyst Eugene Chua in a report on Monday.

“We believe walking away from this acquisition allows CDG to make other accretive acquisitions to grow its businesses, potentially outside of the disrupted taxi segment,” he adds.

OCBC is keeping its fair value estimate of $2.50 on CDG, but downgraded the stock to “hold”, from “buy” previously, after its recent price run-up.

Chua notes that CDG has reiterated that it still intends to go into the private hire car (PHC) space.

“Go-Jek is also reported to be in discussions with CDG in a potential partnership in Singapore but it remains a speculation at this stage,” Chua says. “All considered, we deem a tie-up with Go-Jek a positive one.”

According to Chua, the partnership “may potentially lead to more booking jobs for CDG taxi hirers through Go-Jek’s PHC platform, translating to lower fleet idle rate as drivers are less incentivised to return their taxis with more sustained earnings”.

“Given the fluid situation, we prefer to wait for better clarity over CDG’s strategy competing in the PHC space as well as Grab’s response to new competitors,” he adds.

As at 4.14pm, shares of CDG are trading 6 cents down at $2.40. According to Phillip valuations, this implies an estimated price-to-earnings ratio of 16.6 times and a dividend yield of 4.2% for FY19.

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