• We detailed the possible earnings impact (c.4-6% decline from our base FY19-20F EPS in our worst-case) from new potential PHC entrant, Go-Jek. 
• We project better 3Q18F earnings q-o-q for ComfortDelGro amid expansion of its taxi fleet in Singapore. 
• Maintain ADD with an unchanged target price of S$2.75. 

Does New Potential PHC Entrant Go-Jek Warrant Concern?

We do not think so, at least in the immediate term.

With the lack of a sizeable domestic app user base providing ample demand for taxi drivers to switch over (also considering taxis can still get rides from street hailing), Go-Jek will need to go after Grab’s private hire car (PHC) driver base first to form the supply. Nevertheless, there is the risk that a revival of PHC competition could eventually hurt ComfortDelGro’s taxi earnings in the longer term. 

We detail the possible impact in our scenario analysis on the following page.

Under Our Worst-case Scenario

We see the possibility of a repeat of an exodus of taxi drivers (average of c.380 per month over Jul-Dec 17) that could reverse the gains in ComfortDelGro’s taxi fleet over the longer term (we project a 4-6% decline from our base FY19-20F EPS in this case) should PHC players start to aggressively entice taxi drivers to cater to the bulging demand from app users.

We believe the chances of this happening are remote, but if it did we believe the earliest this scenario would play out is FY20F.

Lack of App Interoperability May Put Go-Jek at a Disadvantage

Unlike Grab which has a single app that can be used across borders, Go-Jek partners with local founding teams to run its overseas operations and has a separate ride-hailing app for each respective market. 

We think it will launch a separate app for its Singapore operations as well, thus making it more challenging for Go-Jek to roll out new features and security fixes across its different apps. This may limit Go-Jek in posing serious PHC competition if the user experience is proven to be lacking.

Earnings Preview for 3Q18F

We estimate ComfortDelGro’s 3Q18F net profit was S$77m (+3% q-o-q, -4% y-o-y) amid expansion in its Singapore taxi fleet. As at end-Aug 18, ComfortDelGro’s taxi fleet in Singapore numbered 12,677, marking two consecutive months of increase from 12,535 as at end-Jun 18 (See Figure 7 in the PDF report attached).

ComfortDelGro could also benefit from a better-than-expected fare hike (we assume 2% fare hike in our current forecasts) which could bring ComfortDelGro’s rail operations back to the black sooner.

Maintain ADD

We retain our ADD call as we are holding out our base-case scenario assumptions. Our DCF-based Target Price of S$2.75 (WACC: 7.4%, LTG: 2%) remains unchanged though we trim FY18-20F EPS due to higher minority interest assumptions.

Key risk is a revival in PHC competition impacting a recovery in ComfortDelGro’s taxi earnings.

Source: CGS-CIMB Research - 11 Oct 2018