• ComfortDelGro (SGX:C52) and Gojek are collaborating to address the driver shortage issue afflicting Singapore's point-to-point (P2P) transportation industry. As part of the collaboration, Gojek users will be able to access ComfortDelGro's taxis via the Gojek app.
• We view this positively as it should reduce the competitive intensity in Singapore's taxi industry even further. We reiterate that ComfortDelGro should see y-o-y earnings growth in 2023, owing to an improving taxi segment and increased rail ridership.
• After the recent correction in ComfortDelGro's share price, its valuation looks compelling.

Teaming Up With Gojek to Address Driver Shortage

• According to news reports, ComfortDelGro and Gojek have formed a two-year partnership to provide Gojek users in Singapore with greater access to ComfortDelGro's 10,000-strong taxi fleet via its ride-hailing app. This should address the broader issue of driver shortages, which has recently resulted in lower fulfilment rates.
• Both companies anticipate that the collaboration will encourage vocational license holders to reconsider returning to the P2P industry, resulting in better service for commuters due to a larger pool of drivers and shorter wait times. The collaboration also aims to improve driver welfare, resulting in higher earnings for drivers.

More Collaboration Opportunities Will be Explored

• ComfortDelGro and Gojek will also look into other areas of collaboration and resource sharing, such as the transition to EV and new revenue streams, as well as insurance, driver training, and vehicle maintenance assistance for driver partners.
• According to a news report, both companies will reveal more details about the deal in the coming months. We leave our earnings estimates unchanged as we await further details from ComfortDelGro management.

Recently Released Quarterly Results Showed the Taxi Business Continuing to Improve

• The taxi business made a strong y-o-y recovery in 3Q22 thanks to higher revenue from lower COVID-19-related rental discounts, higher call volumes, and newly introduced commissions. ComfortDelGro will extend the rental discount for the rest of 2022 and increased commission rate for call bookings to 5% from 4%, which will help to partially offset the rental discounts.

The Investment Thesis Remains Unchanged and the Valuation Is Compelling

• We maintain that ComfortDelGro's leadership position in Singapore taxis and recovery in public transport ridership should enable it to report a gradual earnings recovery. ComfortDelGro's share price has dropped 13% in the last three months, and the stock's forward P/E is now well below its 10-year average, making the valuation quite compelling.
• Our target price for ComfortDelGro includes a 12% the DCF-derived S$1.60 fair value.

• Maintain BUY rating on ComfortDelGro with S$1.80 target price, 46% upside with a ~4% FY23F yield.

Source: RHB Invest Research - 1 Dec 2022