Concerns over the contraction in the Singapore Taxi business are valid, but we think the sell down of the stock has been over-done. The Singapore Taxi business remains profitable. While Group profit is lower, free cash flow has actually improved owing to lower Taxi capex. Moreover, both the Singapore public Bus business and DTL are on an asset-light model. DTL3 will make its full quarter contribution from 1Q18 onwards. The Seletar bus package will contribute positively from 1Q18 as well. Consequently, we see PATMI bottoming this year. Sustainable dividend makes the now 5.2% yield attractive.
Maintain Buy; lower target price of S$2.69 (previously $2.78)
We made some tweaks to our assumptions for the -2.2% fare adjustment (previously assumed -1%) and to the right-sizing of the taxi fleet. Higher WACC of 8.4% used from previous 7.8%, with terminal growth unchanged.
Management shared some insights to some of the ongoing issues.
Strategic alliance with Uber
Transition to the New Rail Financing Framework (NRFF)
Media report of over 3,000 drivers moving over to Grab
UK Bus business
Having said that, Metroline contributes 90% of the UK Bus business, so the overall UK Bus business should remain stable.