The key difference between taxis and ride bookings made via apps is that the former can be hailed on the streets.
Tan and Mo, in their April 4 note, point out that the number of street hails is on a secular downtrend while so-called point-to-point rides are at a record.
"With GrabCab’s upcoming entry into the already declining street-hail segment, we expect increased competition for the incumbents such as ComfortDelgro (CD) which has the current majority market share of around 65%," state Tan and Mo, who expect ComfortDelGro to see compressed margins from this segment as utilisation rates drop.
However, ComfortDelGro is seen to still enjoy strong earnings growth. The company's overseas operations, such as the UK bus contracts, are seen to help lift the bottom line with the renewal of contracts.
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Tan and Mo estimate that overall margins enjoyed by ComfortDelGro will continue trending upwards towards the high single-digit to low-teens percentage in the medium to long term, albeit at a gradual pace given that only 15-20% of contracts are renewed every year.
In another positive aspect, ComfortDelGro's dividend, at 5.8% for 2025, has further upside potential.
Tan and Mo's unchanged target price of $1.76 is pegged to the same 16x FY2025 earnings, which is the five-year average for this counter.
"ComfortDelGro remains one of our conviction picks for 1HFY2025," the analysts add.
