• Entering into a JV by acquiring 51% stake in LCR from Uber
• Sale consideration of S$295mn based on NAV of 12,450 vehicles
• No changes to our forecast, pending more details and conclusion of the deal
• Maintain Buy; unchanged target price of $2.69

What is the news?

ComfortDelGro Corp (“CD”) and Uber Technologies (“Uber”) jointly announced the agreement to form a joint venture. CD will be taking a 51% stake in Lion City Holdings Pte Ltd, which in turn owns 100% of Lion City Rental Pte Ltd (“LCR”). While LCR owns a private hire vehicle (“PHV”) fleet of about 14,000 vehicles. The sale consideration of S$295mn is based on the net asset value of S$642mn based on 12,450 vehicles.

How do we view this?

The positives

• Access to the burgeoning PHV business, offsetting some of the decline in Taxi segment. CD’s Taxi segment has been disrupted by competition from the PHV business model. This gives CD an opportunity to collaborate with the competition and access the business model, albeit from the asset-heavy aspect of vehicle rental.
• Alliance between the two market leaders in terms of fleet size. The combined taxi fleet of Comfort/CityCab numbers 14,306 as at end-October 2017. Together with the 14,000 vehicles from LCR, the combined CD-Uber fleet is about 28,300 vehicles. On the other hand, Grab has partnered the other four taxi companies – Trans-Cab, SMRT, Premier and Prime – giving access to 9,555 taxis. GrabRentals also partnered players such as Strides Transportation and HDT Singapore Holding, which we believe have a combined fleet that is far less than LCR’s 14,000 vehicles.
• Net positive for the Engineering Maintenance segment. It is likely that CD will be providing engineering maintenance services to the JV. While it will be an intercorporate downstream transaction, it should be a net positive for CD from the 49% of the JV that it does not own.

The negatives

• Does not directly address the decline in Taxi business. Comfort/CityCab drivers will now have access to Uber’s ride-booking app-based platform, but we do not see that as doing much for the Taxi business, in terms of maintaining driver stickiness, nor the resultant contraction to taxi fleet.
• Asset-heavy vehicle rental business will incur capex. This is in contrast to Uber’s asset-light app-based platform. As stated in the announcement, CD “has agreed to pay for more vehicles when utilisation increases”.

Maintain Buy; unchanged target price of $2.69

We have not made any changes to our forecasts, pending more details and conclusion of the deal.