• Encouraging operating indicators
• Potential increase in fares ahead
• PHC services may face more regulations

Positive Trend in Taxi Industry Average Engaged Mileage

In the recent few months up to Jan 18, we saw encouraging taxi operating indicators pointing to a more stabilized environment, which is positive for ComfortDelGro (CDG). Firstly, we noted three consecutive months and five consecutive months of YoY growth in industry average engaged mileage recorded for one-shift taxis and two shift taxis, respectively. In our view, this is positive as it indicates more stabilized taxi drivers’ earnings with higher mileage driven.

In addition, we also noted that MoM growth in rental cars were more subdued while the rate of decline in taxi fleet size slowed down for the more significant taxi operators in Singapore. In essence, this trend points to a more stabilized environment for the taxis and private-hire car (PHC) services. We believe a more stabilized environment is positive for CDG taxi business as it translates to a more stabilized taxi fleet hireout rate as well.

Transport Minister Hinted Rising Fares on Higher Costs Ahead

Separately, during the Singapore Budget 2018 debate in early-Mar 18, two points positive for CDG’s outlook were highlighted by the Ministry of Transport.

Firstly, fares are likely to rise with the Transport Minister stating that commuters are likely to have to share in the cost rise as the government continues to invest in buses and trains to improve the public transport service standards in the coming years. Fare increases bode well for CDG’s rail operations of both Downtown Line and North-East Line.

Secondly, given how fast the industry has grown over the past few years, the government is also now studying how to license PHC services to have sufficient regulatory oversight, which in our view, helps further level the playing field between traditional taxi business and PHC services.

Unchanged FV of S$2.25

For now, one catalyst to look out for would be the pending regulatory approval of CDG’s alliance with Uber, which in our view should also open up potential opportunities from enlarged fleet to sell petrol and provide vehicle maintenance services. On above mentioned reasons, we see more upside than downside to CDG’s outlook.

Source: OCBC Research - 21 Mar 2018