Singapore Taxi Sector OutlookSeptember 4, 2017
It has been a few years since Grab and Uber entered the taxi scene, and it is no surprise that Singapore’s transport industry has been affected for the most part, at least when we are looking at taxi fares or how many options for private transport we have now such as ride sharing and so on. In this article we will review the outlook for Singapore’s Taxi sector, mostly its current trends, as well as on how some taxi companies are faring. If you are someone who is currently invested or is thinking of investing in this sector, this overview might help you in your decision.
Right now in terms of taxi companies, Singapore has 6 in total, the largest being ComfortDelGro (C52.SI) with a taxi fleet of over 15,000, and the next largest being Trans-Cab with over 4,000 taxis. Total taxi fleet in Singapore as of June 2017 was roughly over 25,000 and we have been seeing a decline over the past few years, especially since the entrance of Grab and Uber in 2012 and 2013 respectively.
Now Grab and Uber are tech companies that provide mobile applications allowing people to hire private taxi or car rides, or be a private car driver. Drivers who use these apps may use their own car or rent one, and because of the growing popularity of these apps, we are seeing a surge of private car hires to over 60,000 as of June 2017, over 50% more than the Singapore total taxi population, as more people became private hire drivers using the apps.
It is not surprising to see these apps become so popular. They provide free ride bookings through the convenience of your mobile phone, and some provide fixed fees promoting better price transparency in comparison to metered fares, and we often see promotional codes giving discounts or even free rides.
How will our local taxi heavyweight ComfortDelGro (C52.SI) fare?
No doubt we are already seeing some challenges as new competition means new substitutes and loss of market share to some extent. Recent earnings came in below expectations, with fleet size reduced by 6-7%, idle taxi rates rising to 5% from 3% in 1Q2017, and taxi bookings declining 15-20% y-o-y. In terms of taxi utilization rates, it seems like taxi drivers are leaving or being poached over to private hires, thus reducing taxi utilizations figures, while more passengers are moving to Grab and Uber apps for ride bookings, reducing the overall number of taxi bookings.
Now for anxious investors, one way where ComfortDelGro (C52.SI) might make up for these headwinds is through its diversified business model. Revenues from its taxi segment are roughly 35% of total revenues based off its FY2016 results, largest proportion of revenues being from public transport services, approximately 55% of total revenue. So in terms of its taxi segment, although 35% of total revenue is still significant, the company’s survival is not totally dependent on it, but it is still something to keep in mind.
The company also recently announced its exclusive discussions with Uber to form a potential strategic alliance in terms of management of Uber’s fleet of vehicles and possible addition of Comfort taxis into Uber’s booking app. While this is an interesting development, we might only see little positives with regards to earnings. This is given the fact that if Comfort were to handle Uber’s vehicle rental service, profit margins might be unattractive, and although the inclusion into Uber’s app might improve its taxi utilization rates, investors would still wonder to what extent. Overall it is still too early to tell, but it is still good to know that ComfortDelGro is still looking for ways to stay competitive in this taxi market.
In my opinion, if you are someone who is looking to invest in ComfortDelGro, I think the company (being a consistent dividend payer with attractive yields) does have some resilience as a possible investment, but my issues are with the current headwinds and uncertainties not only with its taxi segment, but also with its public transport segment in UK, with the weakening Pound and so forth. I would like to see a clear path forward in terms of business prospects before considering, but of course you might consider it if you have differing views or investment strategies.
So what are some of the things that we should look out for in the taxi industry in the near future? While it may be difficult to predict, more regulations for private hire cars could level the playing field for taxi operators and possibly improve taxi prospects and taxi company earnings. In addition, according to some experts, we might be seeing saturation in terms of quantity of taxis and private hire cars in Singapore, and could see future stabilization. However at this point in time we are still seeing high numbers of private hire license applications, so we will have to wait and see as the trend progresses.
Thanks for reading. If you wish to know more information about stocks, you can speak to your designated Trading Representatives or a Dealer at a Phillip Investor Centre near you.
About the author
Mr Timothy Ang
Mr. Timothy Ang currently provides dealing services to over 10,000 trading accounts and is part of the POEMS Dealing, the core in-house dealing department of Phillip Securities Pte Ltd. Timothy’s investment methodology uses a combination of Fundamental and Technical Analysis, focusing on strong companies that show future promise. Apart from his dealing role, he often provides training seminars on Fundamental and Technical Analysis topics to further enrich his clients’ financial knowledge. Timothy holds a Bachelor Degree of Accounting and finance from the University of Western Australia.