SINGAPORE (Dec 5): RHB Research is maintaining “neutral” on ComfortDelGro (CDG) with an unchanged target price of $2.35, which indicates 11% upside plus 5% FY19F yield.

This comes as the research house is anticipating ride-hailing entrant Go-Jek to initiate a price competition against its counterpart Grab – and awaits clarity on the resultant effect on CDG’s taxi business, which forms about 30% of the group’s earnings before interest and taxes (EBIT).

In a Wednesday report, analyst Shekhar Jaiswal says he views price competition as an “obvious start” to Go-Jek’s arrival to the local market, following the recent launch of the beta version of its app in Singapore in late Nov.

“At present, DBS/POSB customers receive $5 credits for each of their first two rides [with Go-Jek]. We could see more of such discounts after Go-Jek’s full launch next year… In our initial use, we found Go-Jek offering the lowest fare when compared to CDG and Grab,” notes Jaiswal.

“We view this beta launch as Go-Jek’s strategy to ensure that it irons out app related issues and balances its service capabilities to match the demand before the app becomes available to everyone in early 2019,” he adds.

Going forward, Jaiswal believes Go-Jek will eventually focus on building and offering a differentiated product over gaining market share once the Indonesian ride-hailing firm achieves critical mass in Singapore.

In terms of app interface, he sees Go-Jek’s app as “more refined, had better product offerings, and all products worked seamlessly in a single app” when compared to Grab’s app, which currently requires different apps to be installed for different products such as its GrabFood delivery service.

Meanwhile, the analyst remains cognisant that Grab has already started stepping up its offerings to fend off competition for Go-Jek.

This includes the recent launch of the pilot of its monthly subscription programme GrabClub, which aims to provide users savings on services like rides and food delivery.

“While current offers [by GrabClub] focus purely on food delivery, its All-Access Pass will combine ride and food discounts. This pass will be rolled out officially in 1Q19,” says Jaiswal.

As at 11:06am, shares in CDG are trading 1 cent lower at $2.11 or 1.69 times FY18F book value.

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