ComfortDelGro's Lion City Holdings acquisition to boost profits by 5%

It could raise its falling driver retention rate and defend its market share.

ComfortDelGro Corporation Ltd's (CDG) acquisition of Uber's car rental subsidiary, Lion City Holdings (LCR), could boost its 2018 net profit by up to 5%, UOB Kay Hian said.

Singapore Business Review previously reported that CDG will acquire 51% of LCR, whilst Uber will handle the remaining 49%.

However, the transaction is still subject to regulatory approval from Public Transport Council (PTC) as well as the Competition Commission of Singapore (CCS).

As a result, any impact will only happen from 2018 onwards.

"We view the tie-up positively and see it as a necessity," said UOB Kay Hian analyst Thai Wei Ying.

The analyst added that through the acquisition, CDG will have an inroad to the ride-hailing business, where it could raise driver retention rate and defend its market share.

Here's more from UOB Kay Hian:

Completion of the JV with Uber is subject to approval by CCS. There have been some concerns about the potential anti-competitive impact that may arise as a result of the deal and that approvals may not be secured.

In our view, we believe that such concerns are not warranted, given that CDG will still keep its booking platform which continues to allow consumers/passengers to opt for metered as well as a flat fare structure for taxis.

Additionally, following the alliance, drivers will have more options to hire either rental cars or taxis. We also understand the taxis in CDG’s fleet can opt to be on the Grab platform.