This would be offset in part by a +5.3% uplift in automotive engineering earnings, resulting in an overall 5.1% dilution to CDG’s 2018 earnings.
However, Thai says the alliance is necessary in the long run as it is important for CDG to embrace the new reality of the shared economy, in her view.
“The alliance gives CDG an inroad to the ride-hailing business, where CDG could raise driver retention rate through diversification, and also defend market share. While we expect taxi rental to come under pressure given competitive industry dynamics, we believe the shortfall may be partially mitigated by higher contributions from the automotive engineering segment as well as gradual ramp-up of the ride-hailing segment,” she explains.
Although the analyst believes the taxi segment will be “very challenging” ahead, she sees the long-term outlook for the public infrastructure segment in Singapore to be resilient and asset-light.
“As the market scale required for profitability and network effect is typically very high, partnerships or alliances between ride-hailing and taxi operators globally are fast becoming a new competitive strategy rather than intense competition,” notes Thai.
As at 10.10am, shares in CDG are trading 1 cent lower at $2.07, or 15.3 times FY18 earnings.
