• Proposed policy changes are positive for taxi operators, especially for ComfortDelGro (CD). Following a review, Singapore’s Land Transport Authority (LTA) announced the first set of changes to the P2P regulatory and operational framework. While the timeline for implementation has not been finalised, we view them as positive for the taxi industry and especially for CD, which is Singapore’s largest taxi operator.

• Our views on each of the key announcements:

i. Statutory lifespan of diesel, petrol, and hybrid taxis to be extended to 10 years from eight years currently. As taxi operators will be able to recover the cost of the vehicle over a longer period, it should translate to lower taxi rentals, possibly bringing them in line with private hire car (PHC) players. CD currently offers a permanent 10% rental rebate to taxi drivers to keep its rentals competitive and continue attracting drivers. We think CD could reduce/remove these rebates once the changes are implemented.

ii. Inspection frequency for taxis under three years old to be reduced from once every six months to once a year. This will not only minimise operational downtime for newer taxis but also lower maintenance costs for taxis in the first three years, allowing operators to keep new vehicle rentals competitive. CD’s automotive engineering (AE) division maintains its taxi fleet. While the proposal could lead to some reduction in AE intersegment revenue, it would still translate to lower taxi operating costs.

iii. Inspection frequency for chauffeured PHCs over 10 years old will be increased from once a year to once every six months. While this will ensure that older PHCs can provide safe and reliable P2P services, we believe it will add to the operating costs for PHC operators, probably translating into slightly higher rentals for older cars.

iv. Requirement to provide call-booking services will be removed for smaller taxi operators. While CD will be asked to keep operating the call centre – as it currently fulfils the bulk of call-booking trips – it may be allowed to operate a leaner operation, thereby reducing operating costs.

• Could improve taxi driver availability. LTA will ensure that the cost savings, after accounting for additional maintenance expenses from the increased statutory lifespan, are passed on to taxi drivers. This, along with the plan to streamline the Taxi Driver’s Vocational Licence (TDVL) training curriculum to lower the effort and cost to obtain the licence, should help address the availability of drivers, which is one of the key concerns for taxi operators.

• CD should see good profit growth in 2024 from higher Singapore rail revenue, continued improvement in its UK public transport revenue, strong Singapore taxi earnings amidst higher fares and commission rates, new fees for its Zig platform bookings, improvement in its China taxi business, and contributions from recently announced acquisitions.

Source: RHB Securities Research - 6 Mar 2024