ComfortDelgro: Average taxi fares could increase by 10% (DMG)

(BUY, S$1.42, TP S$1.75)

CD’s FY13 PATMI could increase by 4% if taxi rental fees are raised. ComfortDelGro (CD) is revising its taxi fare structure effective 12 Dec 11 and this will include raising basic fares, extending the duration of “peak hours” and lowering peak hour surcharges. Though the actual impact is difficult to quantify, we estimate taxi commuters’ fares to increase by 10%. Assuming CD increases its rental rates by 2% (20% of the increased earnings from the fare revision) in 2QFY12, CD’s FY13 PATMI will be 4% higher than our base case. However, CD has not commented on increasing its taxi rental rates to drivers and so we are leaving our estimates unchanged. As the leading taxi operator with 60% market share, we believe CD’s competitors will follow suit and revise their taxi fare structure as well. Maintain BUY and TP of S$1.75.

Taxi commuters can expect to pay 10% more on average. Changes to the taxi fare structure include (1) a 22% increase in Limousine flag down fares (7% for the other models), (2) lower peak hour surcharges but with an extension in weekday peak hours from 5.5hr/day to 9.5hr/day and now including weekends and public holidays, (3) evening City Area surcharge extended to Sundays and Public Holidays while removing the S$1.00 Public Holiday surcharge, and (4) call booking (excluding advance booking) charges will also be reduced. In light of these, we estimate overall fares for taxi commuters to increase by 10%.

Potential for CD to raise its rental fees to drivers. Based on our assumption that a taxi driver can earn about S$10 more a day following the fare revision, and assuming CD increases its rental fees by 20% of the drivers’ increased profits, CD would be able to increase its average rental rates by about 2%, which will translate to a 4% increase in its FY13 PATMI. Though CD has not commented on increasing its taxi rental rates, we see the possibility of this happening once commuters become more accustomed to the new fare structure.

Maintain BUY, CD remains our pick. At FY12 P/E of 12x, CD remains more attractive than SMRT’s 17x FY13 P/E (FYE Mar). We also expect CD to benefit more from a fare hike given its 15k taxi fleet size versus SMRT’s 3k.opinion.