• To buy 51% stake in Uber’s LCR
• Cash consideration of ~S$295m
• Unlikely a game-changer

Taking a Majority Stake in Uber’s Car Rental Company

More than three months after ComfortDelGro Corporation Ltd (CDG) entered into exclusive discussions with Uber in relation to a potential strategic alliance, CDG announced last month that they have agreed to form a JV to leverage on each other’s expertise. Under the agreement, CDG will acquire a 51% stake in Uber’s whollyowned car rental subsidiary in Singapore, Lion City Holdings, which operates Lion City Rentals (LCR) that has a fleet of ~14,000 vehicles.

The cash consideration for this acquisition is ~S$295m (~0.9x NAV), arrived at based on the value of about 12,450 vehicles, which will be financed by internal funds. We believe CDG should not have face any difficulty financing this acquisition given its cash balance of ~S$538m and net cash position of S$188m, as at end- 3Q17. CDG has also agreed to pay for more vehicles when utilisation of the fleet increases.

Leveraging on the Different Expertise of Both Parties

According to the announcement, post-acquisition, LCR will be able to benefit from CDG’s expertise in fleet management and operations while CDG’s taxi drivers will be able to receive ride requests on Uber’s app, which increases the taxi drivers’ potential earnings. Indirectly, higher earnings will likely lead to lower fleet idle rate as fewer drivers would want to return their taxis or switch to fully become a private hire car driver. In our view, the key benefit CDG derives out of this JV is the access to the Uber app, translating to a larger passenger base for CDG’s drivers, but at a cost of S$295m or more.

Maintain HOLD With Unchanged S$2.05 FV

All said, CDG’s tie-up with Uber is still subject to necessary regulatory approvals. In addition, we do not see the acquisition as a game-changer for CDG, though we do expect allowing Uber app users to directly book CDG’s taxis to help ease pressures on CDG’s fleet idle rate as this collaboration should lead to more ride requests for CDG drivers.

Keeping our forecasts unchanged for now, we maintain HOLD on CDG with S$2.05 FV.

Source: OCBC Research - 4 Jan 2018