Land Transport Sector: New high for TDVL issued October 30, 2018

  • Remain Overweight on the Land Transport sector due to positive industry restructuring and the worst being over for the Taxi industry
  • Taxi population has reached an inflection, as Rental cars population start to contract
  • Robust momentum for TDVL issued suggests underlying demand for taxis
  • Launch of Go-Jek in Singapore slated for November; will be partnering car rental firms and commenced registering drivers
  • Maintain Accumulate on ComfortDelGro; unchanged target price of $2.78

What is the news?

  • The Land Transport Authority (LTA) has published the motor vehicle population and Taxi Driver Vocational Licence (TDVL) data for September 2018.
  • Go-Jek to launch in Singapore in November. Based on a media report, Go-Jek is said to be partnering six rental firms to supply vehicles to interested drivers. And more recently, Go-Jek has launched an online portal for drivers to pre-register on the ride-hailing platform.

How do we view this?

The Positives
+ Taxi population still showing YoY contraction, but has reached an inflection. The rate of YoY decline continues to show sign of bottoming. Fleet contraction had peaked in April 2018 at -19% YoY, and the pace has slowed down for five consecutive months to ‑13% YoY. We believe the worst is over for the Taxi industry, in view of the positive impact following the exit of Uber and resultant restructuring of the ride-hailing industry. However, we do not expect YoY growth in Taxi population in the remaining months of 2018.

+ We expect Rental cars population to contract YoY by end-2018, as demand shifts back to Taxis. Rental cars YoY growth continues to taper. Rental cars population YoY growth has plunged to +1.4% YoY from the March 2017 high of +78.3% YoY, and population has contracted YTD. The Rental cars population contracted by 2,407 cars in 3Q 2018. Assuming the pace of contraction in 3Q 2018 is maintained in 4Q 2018, Rental cars population would contract -6% YoY by December 2018.

+ TDVLs issued remains robust, making new high again; which should translate to demand for taxis by hirers. Recall that TDVLs issued made a new historical high of 624 in August. The strong uptick in demand has continued to September with 851 TDVLs issued. Recall also that ComfortDelGro is buying 1,200 taxis new taxis – mostly replacements, but net additional of 300-400. As such, it seems likely that there will be sufficient demand to soak up the additional supply. And taxi fleet idle rate should remain at low single-digit.

+ Pressure on Taxi industry from Go-Jek’s entry, should not be as significant or prolonged as the Grab-Uber era. Grab has already established itself as the dominant ride-hailing platform, and Go-Jek has an uphill task of getting drivers and riders to defect. Competition this time round should be more rational, as gaining market share through predatory pricing has proved to be an unsustainable model. We do not think it is likely for Go-Jek and Grab to engage in a downward spiral for rider fares and bumping up of driver incentives. Hence, we do not think that there will be taxi hirers moving back to driving private-hire vehicles.

 The Negatives

– -0.4% MoM decline in Taxi population. The decline was broad-based across all taxi operators except for Comfort Taxi, which increased its fleet by 52 taxis or +0.6% MoM. Of some consolation is the combined Comfort and CityCab fleet grew by 14 taxis or +0.1% MoM.

Investment Action

We remain Overweight on the Land Transport sector, on the positive industry restructuring following the exit of Uber and the worst being over for the Taxi industry. We maintain our Accumulate rating on ComfortDelGro, with unchanged target price of $2.78.

Our previous Land Transport sector report was published on Sept. 26.

 

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About the author

Profile photo of Richard Leow

Richard Leow
Research Analyst
Phillip Securities Research Pte Ltd

Richard covers the Transport Sector and Industrial REITs. He graduated with a Master of Science in Applied Finance from the Singapore Management University. He holds the CFTe and FRM certifications and is a CFA charterholder.

He was ranked #2 Top Stock Picker (Asia) for Real Estate Investment Trusts in the 2018 Thomson Reuters Analyst Awards, and ranked #2 Top Stock Picker (Singapore) for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.

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