Will Uber be ComfortDelGro's growth driver?

The Uber logo is seen on a screen in Singapore August 4, 2017 Thomas White/Reuters

While there are continued concerns about Singapore taxi outlook, transport firm ComfortDelGro might be able to depend on its joint venture with Uber for growth in the year ahead.

In a research note, UOB KayHian analysts Thai Wei Ying and Andrew Chow said that the joint venture can potentially enhance ComfortDelGro's net profit by up to 5 percent.

Under the terms of the deal, ComfortDelGro will grab 51 percent stake in Uber's wholly-owned car rental subsidiary in Singapore, Lion City Holdings (LCR).

Also Read: Singapore: Uber to start surge pricing for ComfortDelGro taxis from Jan 19

"Overall, we view the tie-up positively and see it as a necessity, as it gives ComfortDelGro an inroad to the ride-hailing business, where ComfortDelGro could raise driver retention rate through diversification and defend market share," the two analysts said.

However, since the joint venture is still subject to the regulatory approval from Public Transport Council as well as the Competition Commission of Singapore, there have been some concerns about the potential anti-competitive impact that may arise.

The two analysts argued that such concerns were unwarranted, given that ComfortDelGro will still keep its booking platform that allows passengers to opt for metered and 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 ComfortDelGro's fleet can opt to be on the Grab platform," Thai and Chow noted.

The two analysts believe that ComfortDelGro's Uber deal would help bring market stability, given the still challenging conditions of the taxi segment.

Figures from the Land Transport Authority (LTA) revealed that as at November 2017, the total industry taxi fleet has shrunk to 23,439 cabs, down 18 percent.

"While we think that conditions remain challenging, we believe the sector has been consolidating and can hopefully see some stability in the next 6-12 months," the two stated.

This is also indicated by the slower growth of private car hire fleets. Citing LTA, Thai and Chow mentioned that the growth of rental cars has dropped to 34 percent year-on-year in November 2017, down from the 76 percent growth seen in January 2017.

This article was first published on January 23, 2018