This is because the call is premised on expectations of CDG seeing an earnings uplift from its rail and bus units, to be supplemented by an ex-taxi free cashflow yield of 7.8%.
Recent news emerged that Uber is being investigated by the Corrupt Practices Investigation Bureau (CPIB) for its vehicle-procurement practices under the firm’s majority-owned car rental company, Lion City Rentals (LCR).
The analyst believes implications of Uber’s alleged investigation are mixed as the anticipated tie-up has yet to be confirmed.
In his view, CDG has the latitude to avoid jeopardising its operations with any contingent liabilities.
While Uber’s “keenness to sell LCR” – which supports talks that an investigation is indeed ongoing – could strengthen CDG’s negotiating hands, the news could also delay any possible deal which could happen between the two companies, he adds.
Nevertheless, if a tie-up between CDG and Uber materialise, Cheong sees enhanced returns for Comfort’s taxi operations in the longer term although LCR’s ROIC could be at low single digit, below Comfort’s 8.5%.
"We see savings from fixed-cost synergies, better fleet management to improve utilisation rate and improved rental rates could enhance long-term return,” adds the analyst.
“Potential synergies between LCR and Comfort could stem from Comfort’s larger fleet management and cost savings in vehicle maintenance & bulk purchases, and possibly a leaner back office."
As at 10am, shares in CDG are trading flat at $2 or 1.6 times FY18 book.
