SINGAPORE (Apr 6): OCBC Investment Research is keeping its “buy” call on ComfortDelGro (CDG), while leaving its forecasts and fair value estimate of $2.25 unchanged for now as the Competition Commission of Singapore (CCS) continue to review Uber and Grab’s intended merger.
To recap, Uber last month confirmed its intentions to sell its Southeast Asia operations to its rival, Grab.
See: Grab confirms acquisition of Uber's Southeast Asia operations; Uber CEO Khosrowshahi to join Grab's board
See: Uber’s sale of Southeast Asia operations to Grab leaves drivers, riders at a loss
Grab and Uber’s impending merger has raised concerns over the impact on CDG, which last year proposed to acquire 51% of Uber-owned car rental company Lion City Rentals for $642 million.
The ride-hailing firms however have been instructed by CCS to not take any action to integrate their businesses in Singapore as the competition watchdog investigates its possible infringement of competition.
Meanwhile, the CDG-Uber tie-up is also under review by CCS, although analysts say that its terms are likely to be renegotiated in the event Grab successfully acquires Uber’s Southeast Asian operations.
See: Singapore watchdog says Uber-Grab deal may have infringed competition
In a Friday report, lead analyst Eugene Chua says he continues to see more upside than downside to CDG’s outlook, and continues to expect its earnings to bottom out in FY18, supported by a 5% forward dividend yield.
“Other than Singapore, Malaysia and the Philippines have both put Grab on anti-competition watch while Indonesia has mandated private-hire car (PHC) operators to register as transport companies… Shortly after the Grab-Uber merger was announced, carpooling app Ryde said it will be launching its new PHC service, RydeX, in Singapore. Indonesian technology company Go-Jek was also reported to be making plans to expand its services to Singapore as well,” he notes.
Given the current “fluid situation”, the analyst sees several possible outcomes from the CCS’s investigations of both deals involving Uber.
In the event that CCS approves the merger between Grab and Uber, Chua says this is likely to prevent CDG’s collaboration with Uber from going forward. The reverse scenario of CCS approving the CDG-Uber collaboration but blocking the merger between Uber and Grab, however, would further stabilise CDG’s taxi business, in his view.
Chua also notes the possibility of both the merger and the CDG-Uber alliance being blocked by CCS.
“Even if CCS approves the merger, it is likely there will be restrictions on Grab to ensure they do not take any action that will result in further decline of the taxi industry so as to maintain a fair level of competitiveness of both industries,” concludes the analyst.
Shares in CDG closed flat at $2.07 before the mid-day trading break.