ComfortDelGro could lure in cabbies with new profit-sharing scheme

The scheme cuts taxi rental rates from $105 to $68-78 a day in exchange for 15% of cabbies’ fare takings.

ComfortDelGro (CDG) introduced a new voluntary profit-sharing scheme under which cabbies will be offered lower taxi rental rates (down to $68-78 per day from around $105) in exchange for 15% of their fare takings.

Whilst the scheme is initially offered only to cabbies on the older i40 models that are less than four years old, according to CGS-CIMB, management said it could extend the scheme to other drivers if it is proven successful.

CGS-CIMB analyst Colin Tan commented that the new scheme could help CDG chip away at competition from ride-hailing platforms as it may entice drivers looking for shorter or more flexible hours on the road. “As a comparison, Grab drivers could rent a Honda Vezel for about $65-75/day but are charged 20% of their fare takings as commission to Grab,” he said.

This is not the only scheme that CDG is set to benefit from, Tan said, as the potential new regulatory and licensing framework by the Land Transport Authority (LTA) to govern both taxi and ride-hailing operators could help the company.

“LTA had at end-February concluded a public consultation pertaining to its proposed new framework that could subject ride-hailing players to more stringent rules and thus place CD on a more level playing field, in our view,” Tan said.

Whilst the effects of these schemes have yet to be realised, acquisitions should immediately drive CDG’s growth. It had announced earlier this month a $27.5m acquisition for B&E Blanch Pty Ltd, an Australian bus business that operates a fleet of 48 buses and three depots in New South Wales. The acquisition is on the heels of the appointment for a country head for the group’s Australia businesses.

“We see this as a positive move that is part of an organisational restructuring exercise that could pool together its core business functions, and yield operational synergies amongst its acquired entities in Australia,” Tan added.

CGS-CIMB forecasts CDG’s earnings to grow 14% YoY but dip 5% QoQ to $75m for Q1 2019 due to seasonal weakness but with growth from its public transport services business. “The latter was fuelled by organic growth, mainly in Singapore, and acquisitions in 2018,” Tan added.