SINGAPORE’S planned changes to its regulations for the point-to-point transport services sector are expected to be a boon for the taxi industry – particularly ComfortDelGro, the Republic’s largest taxi operator, analysts said.
The government will update its regulations to lower operating costs of taxis and rationalise inspection regimes for taxis and private-hire cars (PHCs).
Firstly, the statutory lifespan of non-electric taxis will be raised to 10 years, up from eight years. This could translate to lower taxi rentals in line with PHC players, as taxi operators could recover the vehicle’s cost over a longer period, said RHB in a report on Wednesday (Mar 6).
Over time, this could lead ComfortDelGro to reduce or remove the rental rebates it offers taxi drivers to keep rentals competitive and attract drivers, RHB added.
Notably, the move could lower depreciation costs of assets, although ComfortDelGro could see higher initial capex outlay from the longer tenure of Certificates of Entitlement, DBS Group Research said in a separate report on Tuesday.
Next, taxis under three years old will require inspection once a year versus the previous frequency of six months. However, chauffeured PHCs over 10 years old will require inspection every six months versus the current frequency of once a year.
“This will not only minimise operational downtime for newer taxis but also lower maintenance costs for taxis in the first three years, allowing operators to keep new vehicle rentals competitive,” said RHB analyst Shekhar Jaiswal.
Although the proposal could lead to some drop in intersegment revenue for ComfortDelGro’s automotive engineering division, which maintains the group’s fleet, it would still translate to lower operating costs, he noted.
Meanwhile, the increase in the frequency of inspections for PHCs could lead to higher operating costs for PHCs, translating to slightly higher rentals for older cars. That being said, the impact could be marginal, DBS said.
As part of the tweak in regulations, smaller taxi operators will no longer need to maintain call-booking services, as they only make up 1 per cent of all point-to-point trips.
DBS does not see any impact on ComfortDelGro, which fulfils 99 per cent of call-booking trips and will continue to offer the service.
However, it may be allowed to operate on a leaner operation, which could reduce operating costs, noted RHB.
Both DBS and RHB have a “buy” recommendation on ComfortDelGro and target prices of S$1.67 and S$1.65, respectively. The transport group’s counter was trading flat at S$1.36 as at 1 pm on Wednesday.
Earnings meet expectations
Last week, the group posted a 76.5 per cent jump in net profit to S$102 million for the second half of 2023, supported by a 4.2 per cent revenue increase to S$2 billion.
This brought the group’s full-year net profit to S$180.5 million, up 4.3 per cent from S$173.1 million in FY2022. The results came as the group sustained improvements to its core public transport and taxi and private-hire segments throughout the year.
The results were mostly in line with analysts’ expectations, who maintained “buy” calls on the stock.
Phillip Securities raised its target price to S$1.63 from S$1.57 after increasing its FY2024 earnings estimates, as it expects multiple earnings drivers for ComfortDelGro in the year ahead.
This includes higher platform fees and commissions for Singapore taxis, UK bus indexation and re-contracting, a large taxi fleet size in China, and margin recovery for Singapore rail operations as costs stabilise and rail passenger numbers grow.
Similarly, Maybank raised its earnings per share estimates for FY2024 to FY2025 by 1 to 4 per cent on contract renewals and fare indexation, which could improve ComfortDelGro’s margins.
In contrast, UOB Kay Hian lowered its profit after tax and minority interest forecasts for 2024 and 2025 as it expects lower overall margins. This led to a lower target price of S$1.58 from S$1.66.
Maybank and Citi’s targets remained unchanged at S$1.60 and S$1.65, respectively.
