What is the news?
How do we view this?
The Positives
+ Taxi population continues to contract, but the rate of decline shows sign of bottoming. YoY contraction has remained about -19% for three consecutive months. 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.
+ Rental cars YoY growth continues to taper down, and population remains stagnant. In fact, the population has contracted -0.2% MoM. Recall that some unhired cars from Lion City Rentals had been put up for sale in the used-car market recently – evidence that the Rental cars population had grown too quickly, and there is an oversupply.
+ Measures by CCCS expected to have limited impact, as the 51% of private-hire drivers passing the PDVL appears to be the bottleneck instead. In addition, the lower number of actual PDVL holders is likely to exacerbate the oversupply of Rental cars. We expect the Rental cars population to contract in the coming months.
+ Momentum for TDVL issued has been maintained. Each of the first five months of 2018 saw growth in TDVL issued of at least 22% YoY. The total number of TDVL issued for the 5M18 period has been able to offset the natural attrition of licence expiries, resulting in the number of valid TDVL holders remaining unchanged YTD.
The Negatives
– Grab is likely to maintain its dominant position in the ride-hailing space, thus exerting credible competition to the Taxi industry. New entrants to the ride-hailing space will also face an uphill battle to gain market share due to the existing network effect enjoyed by Grab.
– What would make us turn negative on the sector? With new ride-hailing players coming to the market, we are cautious over a resurgence of cheap fares and more driver incentives, which would negatively impact the demand from Taxi hirers and passengers. Further regulatory action that undermines the nascent recovery in the Taxi industry would also make us turn negative on the sector.
Investment Action
We maintain 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 an unchanged target price of $2.69.
Our previous Land Transport sector report was published on 18 June.
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.
