Starting next month, GrabCab, a subsidiary of Grab Holdings, will put 40 cars on the road - becoming the sixth Singapore taxi operator. With the word out, GrabCab has received applications from between 700 and 800 individuals to be its drivers.
"This is in line with our earlier expectations that incumbent taxi operators would face increased competition to retain taxi drivers," state Tan and Mo, who expect ComfortDelGro, as the largest taxi operator here, to see lower taxi utilisation as a result.
Nonetheless, they believe there will be "little negative impact" as measures by GrabCab to attract new drivers are likely to be "transitory".
Assuming GrabCab is able to find enough people to field all 800 vehicles - the minimum required - that is equivalent to just 5% of Singapore's taxi market share.
Meanwhile, ComfortDelGro is stepping up its presence Down Under. It is part of a consortium bidding for the rights to operate metro lines in Melbourne. The tender will open next year. The city's network spans 405 km with 17 lines and 222 stations.
Tan and Mo "understand" that this system generates annual revenue of around $2 billion.
Assuming a 25% stake and operating margins of between 5 - 6%, ComfortDelGro is looking at additional operating profit of between $25 and $30 million, equivalent to 5-7% increase of its total operating profit estimates.
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"If the Melbourne rail bid is successful, this would allow ComfortDelGro to create a multi-modal transport model (rail-taxi-bus) in Australia that CD currently has in Singapore," add Tan and Mo.
In addition, ComfortDelGro remains in talks with UK authorities for new bus operating contracts that will give a "better margin profile", the analysts suggest.
Their target price of $1.71 is pegged to the same 16x FY2025 earnings, which is ComfortDelGro's five-year average long-term PE.
"Backed by ComfortDelGro’s decent dividend yield of 6% for 2025, we opine that there is potential upside at current attractive price levels, underpinned by strong earnings growth from the taxi segment and better margins from the UK bus business.
"With its defensive earnings amidst market volatility, ComfortDelGro is one of our conviction picks for the second half this year," they add.
ComfortDelGro shares changed hands at $1.42 as at 3.18 pm.
