Analysts upbeat on possible Comfort-Uber partnership

Whether taxi operator ComfortDelGro will collaborate with ride-hailing app Uber Technologies is yet to be determined, but stock analysts are already warming to the idea of a tie-up.

Since Comfort said on Tuesday that it is in talks with Uber over a potential alliance, several research houses have issued their thoughts on what form that partnership could take, and the various ways it would benefit the firm.

Investors also seemed pumped about the news when it broke, with Comfort shares soaring about 9 percent on Wednesday, although they have lost some ground to profit-taking since.

The idea of a collaboration between the two is particularly appealing, analysts said, given Comfort’s struggles in keeping up with a disrupted taxi industry.

RHB Securities Research analyst Shekhar Jaiswal noted that amid elevated competition from Uber and Grab, its taxi revenue fell 11 percent in the second quarter from a year earlier. Its Singapore taxi fleet shrunk 7.5 percent from the end of last year to 15,556 vehicles as at June 30. Its idle rate increased to 5 percent compared with 3.5 percent at the end of March 31.

“ComfortDelGro’s competitors in the taxi industry are already collaborating with Grab, and the company has struggled to improve its booking system to match the competition from Grab,” Mr Jaiswal said.

Uber competitor Grab made its surge pricing service exclusive for all Singapore taxis in March this year, except for Comfort’s.

Comfort made clear in its announcement that the alliance with Uber was not a sure thing, but that if it did happen, it could include collaboration in relation to the management of fleet vehicles and booking software solutions in Singapore, including having Comfort taxis being made available on Uber’s app.

Mr Jaiswal noted that any increase in bookings for Comfort taxis would depend on fares being competitive and comparable with Uber’s own service and the seamless integration of its booking system with the ride-sharing giant.

OCBC Investment Research agreed, saying in a report that an alliance may create opportunities on two fronts.

“First, by joining forces with Uber, Comfort will be able to expand its booking reach beyond its own mobile app and call centre, leveraging on Uber’s booking technology.”

However, the incremental bookings to Comfort still depend on the competitiveness of Comfort taxi fares compared with the private-hire car services, such as UberX.

“Second, Comfort has more experience managing a large vehicle fleet, with its own engineering capabilities supporting car-servicing. With Uber having a fleet in excess of 15,000 vehicles compared to Comfort’s fleet of 15,556 taxis (as at June 30), this alliance could potentially lift Comfort’s engineering business if Uber uses Comfort for vehicle maintenance and related services,” OCBC added.

However, Maybank Kim Eng analyst John Cheong noted that the management of Uber’s vehicles, repair and maintenance are the “low-hanging fruits” that will not contribute much towards Comfort’s revenues.

“The positive scenario will be if Comfort secures the car rental business and is allowed to charge a profitable rate,” he said, referring to Uber’s Lion City Rental, which provides car rental services to its drivers.

Another positive scenario, he added, is if Comfort could introduce Uber’s surge pricing system too.

From Uber’s standpoint, it would be a move to gain access to a large fleet of vehicles without the need for further funding or subsidies, CIMB Research analyst Cezzane See wrote.

“This could also mean that it will need to continue attracting passengers, especially since its reputation may have been affected by the recent defective car scandal,” she added.

It was reported earlier this month that Uber had leased cars here that were prone to fires.

The firm bought more than 1000 defective Honda Vezels from importers and leased them to drivers, although it was aware that Honda had recalled the model.