• Falling taxi ridership
• Expect resilient earnings but growth to slow
• Maintain BUY on lower FV

Rapid expansion by private hire car service providers

Compared to end-Dec 15 data, car population in Singapore as at end-Aug 16 fell 0.2% to 955,550 vehicles, but rental car population jumped 48.0% to 43,462 vehicles (Exhibit 1 & 2). In our view, this surge in rental car population is largely driven by the rapid expansion of the private hire car service providers, mainly Grab and Uber.

We believe their emergence and expansion have also led to 19 consecutive months of decline in average daily number of taxi trips made by oneshift taxis (Exhibit 5). In our view, with Grab and Uber still engaging in activities to gain market share, rental car population is likely to continue its growth in the near-term.

Traditional taxi model still a better option as full-time job

As a result, we expect ComfortDelGro’s (CDG) taxi earnings growth to slow or remain flat as CDG: 1) slows down its fleet growth to prevent idling fleet, and 2) possibly increasing incentives to retain/attract existing/new taxi hirers. That said, we note that Grab and Uber are still trying to gain market share by lowering base fares, and boosting their drivers’ income through attractive incentives, which in our view, are unsustainable over the long-run.

Bloomberg recently reported that Uber’s 1H16 loss of US$1.2b globally was mainly contributed by subsidies for Uber’s drivers. Furthermore, CDG’s management noted in its 1H16 earnings call that 80% of its taxi hirers’ trips are still street hail, with the remaining 20% done through bookings.

In our view, this indicates that driving a traditional taxi full-time generates more stable and higher monthly income compared to driving for Uber/Grab (with lower or without incentives). Hence, we think an exodus of CDG’s existing taxi hirers is an unlikely scenario, and expect CDG’s taxi earnings to remain resilient as long as management continues to focus on ensuring high (>90%) hired-out rate of its taxi fleet.

Supported by 3.4% FY16F dividend yield

As we factor for slower to flattish taxi earnings outlook, our DCF-derived FV decreases from S$3.21 to S$3.10. Maintain BUY.

Source: OCBC Research - 4 Oct 2016