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ComfortDelGro plunges on contrarian 'sell' report

Singapore

PUNTERS hightailed out of ComfortDelGro on Thursday after Deutsche Bank analysts blew the war horn, flagging an impending incentive war for private-hire car drivers as soon as Go-Jek launches its ride-hailing services here this month.

The "sell" report sent ComfortDelGro shares down 16 Singapore cents or 6.78 per cent to close at S$2.20, with 16.5 million shares changing hands.

But the stock finished above the day's low of S$2.18 as other houses shrugged off references to an Uber-Grab price war redux.

KGI analyst Joel Ng told clients: "We do not agree that the entry of Go-Jek will be structural. Burning cash indefinitely is not a business model."

While Deutsche Bank noted that a 70 per cent decline in Certificate of Entitlement (COE) costs since 2013 has also hiked car ownership rates at the expense of taxi driver incomes, Mr Ng disagreed: "They have not taken into account higher fuel costs, where oil prices are up 140 per cent since 2016. Most taxis are currently on much cheaper diesel fuel and provided at a subsidised rate to ComfortDelGro's drivers. Furthermore, maintenance is a key issue with private cars whereas ComfortDelGro's taxis are serviced by its in-house engineering team."

Ahead of Go-Jek's Singapore foray, Grab recently launched a "Monthly Income Guarantee" programme that will guarantee drivers gross monthly incomes of S$6,888 to S$11,888, before deducting costs such as rental and fuel.

Deutsche Bank research analysts, led by Jeffrey Ng, went against consensus by predicting declines of 12 to 27 per cent in Comfort's taxi fleet next year and in 2020, if taxi drivers make the switch to private-hire cars instead.

ComfortDelGro's taxi fleet shrank 17 per cent in 2017 at the height of the Uber-Grab era.

Deutsche Bank wrote: "Grab's recently launched programme signals a marked change in guaranteeing up to two times current estimated gross revenue of S$6,328 per month".

But other analysts pointed out that the requirements drivers have to meet to qualify for the income guarantees are not all that simple, so the threat to ComfortDelGro may be overblown.

The company reports its third quarter results after trading hours today.

PhillipCapital analyst Richard Leow expects third-quarter net profit to be marginally lower than last year.

"However, the year-on-year percentage decline has been narrowing, so things are bottoming out," he said, predicting that fourth-quarter earnings will be higher than in 2017.

"The fourth quarter of 2017 was an exceptionally low base because that was the quarter in which Downtown Line 3 (DTL3) commenced operations."

So operating costs climbed higher in that quarter, whereas revenue contributions from DTL3 only came in late-October, Mr Leow said.

Meanwhile, a surge in the number of Taxi Driver's Vocational Licences (TDVL) issued in August and September may signal that demand to drive taxis remains robust.

He said: "Recall that TDVLs issued made a new historical high of 624 in August (that) has continued to September with 851 TDVLs issued."

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