ComfortDelGro shares rise on news of possible Uber tie-up

ComfortDelGro shares rise on news of possible Uber tie-up

The local taxi giant was among the most actively traded stocks on Wednesday, powering up 8.76 per cent to finish at a near two-month high of S$2.36.

File Photo Comfort Delgro
File photo of a Comfort DelGro taxi. (Photo: Calvin Oh)

SINGAPORE: Shares of ComfortDelGro on Wednesday (Aug 23) got a lift from its announcement of a potential strategic alliance with ride-sharing giant Uber.

The stock of Singapore’s largest taxi operator surged 8.76 per cent to finish at a near two-month high of S$2.36. Earlier in the day, it rose as much as 11 per cent and was among the day’s most actively traded stocks, outperforming the broader Straits Times Index which slipped 0.1 per cent.

The company said on Tuesday it had signed an exclusivity letter with Uber and that both companies could partner “in relation to management of fleet vehicles and booking software solutions in Singapore”. This may include having ComfortDelGro’s fleet of about 15,000 taxis made available on Uber’s app.

ComfortDelGro said the potential strategic alliance "will strengthen the company's position as a major mobility service provider in Singapore” but added that there was no certainty the discussions will result in a “definitive agreement”.

Still, market analysts described the move as positive for the local transport operator, which has seen its taxi business come under pressure from the emergence of private-hire firms such as Uber and Grab.

Earlier this month, ComfortDelGro reported a 6.8 per cent drop in second-quarter net profit from the same period a year earlier, on the back of slower business and a negative foreign-currency translation effect. Its revenue for the three months ended Jun 30 also fell 3.4 per cent from the same period a year ago, dragged down primarily by a 10.7 per cent slump in its taxi revenue.

JOINT VENTURE ON THE CARDS?

CMC Markets analyst Margaret Yang noted that ComfortDelGro shares have been on a downtrend since November 2015, reflecting the tough operational environment.

She said a tie-up with Uber will be a “positive move” that may help the taxi operator “integrate into the new ride-sharing business”. 

“This is part of a natural consolidation of the local market. It’s either they work together or get marginalised,” Ms Yang told Channel NewsAsia. “But moving forward, we need to see more details of how both parties can reach a deal.”

DBS Vickers analyst Andy Sim expects both companies to leverage each other’s strengths. “From Uber’s perspective, this could be expanding its platform to include taxis with a leading market player. For ComfortDelGro, the fleet management could provide opportunities for its engineering services, coupled with increased bookings for its taxi drivers through the Uber platform,” he said in a report published Wednesday.

Overall, the announcement, while lacking concrete details, will help to ease market concerns about the ComfortDelGro, Mr Sim added.

Phillip Capital Research investment analyst Richard Leow said a joint venture could be on the cards. 

“I do not think that a strategic alliance would be as superficial as making the taxis available on Uber's app. A possible outcome could be that the taxi assets are divested into a joint venture with Uber," he told Channel NewsAsia. "Such an arrangement would help ComfortDelGro to transfer some of the risk of ownership of the taxi assets.” 

However, analysts said it remains too early to tell if the potential alliance will help ComfortDelGro and Uber to fend off competition from Grab, the other ride-hailing giant in Singapore.

“Although the potential alliance has positive benefits, we are also cognisant that competition may not cede completely as Singapore is still likely to be a key market for Grab as well,” said Mr Sim, citing Grab’s move to combine its fleet of private-hire drivers and taxi drivers under a new dynamic fare pricing service called JustGrab in March, as well as plans to raise more than US$1.5 billion (S$2.1 billion) in a new funding round backed by China's Didi Chuxing and Japan's Softbank Group.

Source: CNA/nc

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