SINGAPORE (Sept 27): Phillip Capital is keeping an “overweight” recommendation on the land transport sector due to positive industry restructuring following the exit of Uber and the worst being over for the taxi industry.

The research house has also maintained its “accumulate” rating on ComfortDelGro with an unchanged target price of $2.78.

This month marks the second consecutive month that Singapore taxi companies – Comfort Taxi, CityCab and Prime – grew their fleets m-o-m.

New entrant HDT Singapore Taxi has also just started with a fleet of 95 taxis. It was granted a taxi service operator licence on Aug 1 and intends to grow its fleet to about 800 taxis in four years.

In addition, the rate of y-o-y decline in taxi population continues to show sign of bottoming. Contraction hit a y-o-y low of –19% in April and this has slowed down for four consecutive months.

In a Tuesday report, analyst Richard Leow says, “We believe the worst is over for the Taxi industry, in view of the positive impact following the exit of Uber and resultant restructuring of the ride-hailing industry. However, unlikely to see y-o-y growth by the end of 2018.”

On the other hand, growth for rental cars continue to taper y-o-y, with this month being the third consecutive month of single-digit growth.

“We expect Rental cars population to eventually start to show YoY contraction by the end of the year,” says Leow.

Currently, only 51% of private hire drivers have passed the Private Hire Car Driver's Vocational Licence (PDVL) by the June 30 deadline. Hence, the pool of licensed drivers able to rent cars to provide this service has reduced.

Meanwhile, Taxi Driver's Vocational Licence (TDVL) have recorded an all-time high of the license being issued. This is a continuation of the positive momentum since January 2018. Consequently, this has been sufficient to offset the natural attrition of licence expiries, and there has been modest YTD growth in the number of valid TDVL holders.

“We maintain our view that a sustained average of about 400 new TDVLs issued monthly would be sufficient to sustain growth in number of valid TDVL holders,” says Leow.

The Competition and Consumer Commission of Singapore (CCCS) issued a direction for Grab to maintain the pre-merger pricing algorithm and driver commission rates, but left dynamic pricing, rider promotions and driver incentives to Grab's discretion.

According to the analyst, this direction does not have the drivers’ best interest in mind and could curtail the ride-hailing industry more than intended. By fixing fares low, Grab is likely to keep driver incentives low too, resulting in lower driver income.

Consequently, driving a private hire vehicle may not be a sustainable profession, instead driving a taxi full-time may become more viable, due to the income stability.

In both July and August, average daily Rail ridership exceed 1.2 million passengers, with SBS Transit’s average daily Rail ridership exceeding 1.2 million earlier than expected.

“We believe most of the increase is attributable to a change in travel pattern among commuters, to make use of the Downtown Line,” says Seow.

As at 11.35am, shares in ComfortDelGro are trading 2 cents higher at $2.40, while shares in SBS Transit is trading at $2.61.

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