Singapore Land Transport

Kim Eng on 19 May 2014

•  New entrants look set to shake up the taxi market in Singapore. But fears of booking income loss are unfounded as our analysis shows potential impact to be minimal.
• Instead, overall industry revenue pool may be augmented and operators stand to benefit in the long run.
• Maintain BUY on ComfortDelGro as it is most exposed to the impending changes. SELL SMRT.

Growing presence of new entrants
New entrants, armed with innovative app-based business models, look set to shake up the taxi market in Singapore as their presence continues to grow. They can be divided into two broad categories: (1) Entrant Model A, whereby companies channel passenger traffic to existing taxi drivers, and (2) Entrant Model B, whereby companies link passengers to limousines and private vehicles. With increasing popularity, we believe the first would thrive while the second could struggle due to regulatory hurdles (eg, insurance coverage and service quality standards). In this report, we assess the implications for existing operators as Entrant Model A takes root.

Headline concern: Impact on booking income
The potential loss of taxi booking income is a key headline concern. However, our analysis suggests minimal impact on the profitability of taxi operators. Even if booking income plunges by 20%, the potential loss of profit would translate to a mere 3.4%/4.3% of ComfortDelGro’s/SMRT’s Singapore taxi EBIT. This is an even smaller proportion of the respective groups’ total profit. Operators stand to benefit in the long run We argue that the new entrants would augment the overall revenue pool of Singapore’s taxi industry, benefitting operators in the long run. Currently, only 10% of taxi journeys are completed via booking systems, but we expect penetration rate to increase by 5ppts within the next three years as passengers take to the new apps. This implies the industry’s annual revenue pool could go up by SGD52m or SGD5.16 per taxi per day. Asset ownership, however, would remain vital in the taxi ecosystem and we expect operators to lift rental fees over time in response. This should offset any potential near-term loss in booking income. ComfortDelGro has the largest taxi fleet in Singapore and is thus most exposed to the impending changes. Maintain BUY and TP of SGD2.40. SELL SMRT.