SINGAPORE (Feb 20): RHB is maintaining its “neutral” call on ComfortDelGro with a target price of $1.98.
This came on the back of the Competition Commission of Singapore (CCS) identifying issues that, the house believes, needs further in-depth assessment before it makes any decision about the proposed strategic alliance between Comfort and Uber.
See: ComfortDelGro-Uber joint venture enters Phase 2 of regulatory review
The commission has identified 10 issues in total and has requested for more information on the proposed alliance from both parties.
On receipt of the information, the CCS’ assessment could delay the regulatory decision for another 120 days.
In a Tuesday report, analyst Shekhar Jaiswal says, “It is already a bit difficult to assess the financial impact of the proposed alliance, and the hold-up in regulatory approvals for ComfortDelGro’s strategic alliance with Uber would further delay any likelihood of a re-rating in the former’s stock.”
Although the analyst believes that this alliance should drive strong earnings growth for Comfort’s automotive engineering and vehicle testing businesses, the impact from acquisition of Lion City Rental’s (LCR) car fleet on its taxi business is not very clear, as both businesses are currently competing with each other.
In addition, rental differences between taxi and private car hire fleets – as well as a lack of information on the utilisation rate of LCR’s private car fleet – make the financial impact assessment more difficult.
Meanwhile, CNBC on Feb 17 reported that Uber is in talks to sell its Southeast Asian business to Grab in exchange for a stake in the company.
See: Uber said to be in talks to sell Southeast Asia business to Grab
See also: No retreat: Uber eyes Singapore, Japan expansion
Although there has been no confirmation on the deal, Jaiswal believes that Uber mat have to revisit its strategic alliance with Comfort if the deal occurs.
“Similar to the CCS’ review of the company’s strategic alliance with Uber, we believe, the sale of the latter’s Singapore business to Grab – if confirmed – would be subject to a review by the commission. This would be to determine whether competition issues would arise from the sale,” says Jaiswal.
In a Tuesday report, DBS analyst Andy Sim says, “We continue to maintain our neutral stance on Comfort, given the uncertainty of the outcome, coupled with the potential different scenarios that could arise if the acquisition indeed does proceed.”
DBS is maintaining its "hold" rating on Comfort with a target price of $2.12.
The analyst sees potential synergies from the consummation of the deal, from the perspective of vehicle maintenance, inspection, petrol sales and insurance, arising from managing a larger fleet, but this has not been priced in in the forecasts.
It also depends on the level of competition, particularly from Grab, whether this competition will persist, and at what rate, as well as the rental rates of taxis versus private-hire vehicles.
In addition, Sim believes that news of Grab potentially acquiring Uber’s Southeast Asian business continues to create uncertainty on the outcome of the deal.
Shares in ComfortDelGro closed at $2.04 or 1.66 times FY18 book with a dividend yield of 4.9%.
