CDG-Uber tie-up to boost work but earnings will be hurt

No thanks to intense competition with other companies.

After ComfortDelGro Corporation (CDG) announced its alliance with Uber, CIMB said this could reduce its idling rate and keep more taxi drivers busy.

On 8 December, CDG signed a deal to buy 51% of Uber's rental car subsidiary, Lion City Rentals (LCR), which has a current fleet of 14,000. The total cash consideration for the deal is at $295m.

According to CIMB, CDG said that the partnership with LCR will create a path for its taxi drivers to receive ride requests on Uber's app.

This could lower the idling rate, which is estimated to be at 5% in 9M2017.

However, a return to growth for CDG’s taxi fleet and earnings may be unlikely as competition in the taxi and rental car segment has become more competitive. The ratio of rental cars vs. taxis has risen significantly, with the former outnumbering the latter by 2.8x as at 17 October 2017.

CIMB analyst Cezzane See commented, "The tie-up may not rejuvenate CD’s taxi segment, in our view; but it could moderate the competitive landscape as there would be fewer players in direct competition (two large consortiums: CD/Uber tie-up; and Grab/SMRT/Transcab/Prime Taxi/Premier Taxis/HDT Singapore Taxi)."