ComfortDelGro stock rises 6% on Uber deal

The acquisition involves ComfortDelGro buying 12,450 cars out of a fleet of 14,000 belonging to Uber's Lion City Holdings. ComfortDelGro's taxis and Lion City Rental's private-hire cars will then come under a centralised fleet management system.
The acquisition involves ComfortDelGro buying 12,450 cars out of a fleet of 14,000 belonging to Uber's Lion City Holdings. ComfortDelGro's taxis and Lion City Rental's private-hire cars will then come under a centralised fleet management system.PHOTO: LIANHE ZAOBAO

Analysts mostly laud transaction while maintaining their outlook

The decision to take a 51 per cent stake in Uber's car rental business has injected some surge pricing into ComfortDelGro's stock.

News of the deal's finer points sent the transport giant's shares up 12 cents or 6.28 per cent to $2.03 yesterday.

Company spokesman Tammy Tan said the acquisition involves ComfortDelGro buying 12,450 cars out of a fleet of 14,000 belonging to Lion City Holdings, the Uber unit.

The long-awaited deal consists of a cash consideration of $295 million, based on net asset value of about $642 million.

ComfortDelGro's taxis and Lion City Rental's private-hire cars will then come under a centralised fleet management system that will dispatch vehicles to customers.

Analysts mostly praised the move but maintained their outlook on the stock, tempered by pending regulatory approval and uncertain growth potential for ComfortDelGro's taxi business.

Broker CIMB Research kept its "hold" rating with a $2.15 target price, saying that growth and earnings for the company's taxi fleet may be "unlikely" despite potential benefits of the deal. These include a lower taxi idling rate and uplift in earnings for ComfortDelGro's automotive engineering services, and car leasing and rental) divisions.

UOB Kay Hian maintained a "buy" outlook with a target price of $2.25, citing an estimated 5 per cent boost to ComfortDelGro's earnings in the 2018 financial year.

"We are positive on the (joint venture) and deem this alliance necessary in the long run as it gives (ComfortDelGro) inroads into the ride-hailing market, where it could raise driver retention rates through diversification and defend market share," the broker said.

Phillip Securities also maintained its "buy" recommendation at a $2.69 target price, saying access to the burgeoning private hire vehicle business would offset some of the decline in ComfortDelGro's taxi segment. It also said the combined fleet of a possible 28,300 vehicles with the ComfortDelGro/ Lion City tie-up would be far larger than the alliance Grab has with the other four taxi companies - Trans-Cab, SMRT, Premier and Prime - which numbers 9,555 taxis.

It added: "GrabRentals also partnered players such as Strides Transportation and HDT Singapore Holding, which we believe have a combined fleet that is far less than Lion City's 14,000 vehicles."

However, the asset-heavy nature of the vehicle rental business will incur more capital expenditure, contrasting with Uber's asset-light app-based platform, with ComfortDelGro agreeing to pay for more vehicles when utilisation increases.

A version of this article appeared in the print edition of The Straits Times on December 12, 2017, with the headline 'ComfortDelGro stock rises 6% on Uber deal'. Print Edition | Subscribe