• BUY, new SGD1.60 TP from SGD1.50, 14% upside with 5% 2024F yield. ComfortDelGro recently announced two developments that should strengthen its earnings ahead: i) It plans to acquire 90.75% of A2B Australia (A2B) at AUD1.45/share (c.SGD150m); and ii) its Singapore taxi booking commission rate has risen to 7%. The A2B acquisition and higher commission rate should lift FY24-25 earnings by 2-4% and 4-5%. Our positive outlook is on: Stronger overseas public transport earnings, robust Singapore rail ridership numbers and higher Singapore taxi earnings.

• Acquisition of the remaining stake in A2B Australia. The announced transaction values A2B, a company that primarily facilitates taxi bookings, trips, and payments, at AUD182m or SGD163.3m (on a fully diluted basis). The acquisition will be funded through existing cash and bank facilities. We assume 75% of the value will be funded by debt, and the transaction – which requires multiple approvals – will only be completed by the end of 1H24. A2B, which is listed on the ASX, has two core revenue streams: Fixed monthly fees from taxi operators for facilitating taxi bookings and payment processing fees for non-cash taxi payments. The company has seen steady improvement in profit with a FY22 (Jun) EBITDA of AUD20m, which is still well short of the AUD36m EBITDA reported before the pandemic.

• Increase in Singapore taxi commissions. Effective 1 Jan 2024, CD has increased the commission rate on taxi bookings from 5% to 7%. To help the drivers offset the impact of the higher commission rate, CD has made the 10% rental waiver permanent as of 1 Jan 2024. In addition, from 1 Jan to 31 Mar 24, it has waived commissions for bookings with fares of SGD9 and lower. Despite the rate hike, CD’s commissions are lower compared to its rivals, Grab and Gojek. While TADA and Ryde have opted for a commission-free model for drivers, we don’t think this is sustainable, given their smaller operations. We estimate that every 1% increase in commissions could increase earnings by 2-3%. The increase will be partially offset by the permanent extension of 10% rental waiver.

• We remain positive on CD. We increase FY24-25F earnings by 3% each. We also maintain our positive outlook for CD, as we believe it should continue to see growth in 2024, aided by i) Overseas public transport earnings; ii) Singapore rail ridership staying robust; and iii) strong taxi earnings amidst the increase in fares and commission rates, as well as the introduction of a new fee for bookings on the Zig platform. As CD’s ESG score of 3.4 is above the country median, our TP includes a 6% ESG premium to its fair value.

Source: RHB Research - 12 Jan 2024