1 Uncomfortable Trend in ComfortDelGro Corporation Ltd’s Latest Quarter

Taxis have long been an important contributor to ComfortDelGro Corporation Ltd’s (SGX: C52) business, but that may change in the future.

In ComfortDelGro’s 2017 first quarter results, its taxi segment recorded a near-6% year-on-year decline in revenue. The decline is not a death-blow, but there could be major implications that investors should take note of. After all, the taxi segment is responsible for 36% of ComfortDelGro’s 2016 operating profit. This is shown in the chart below:

Source: ComfortDelGro annual report  

The taxi business’s operating profit has grown by 18% from 2012 to 2016, driving growth in ComfortDelGro’s overall operating profit.

Three uncomfortable words

In its 2016 fourth quarter earnings report, ComfortDelGro warned that its taxi revenues will be lower for 2017. True enough, the taxi segment’s revenue did fall in the first quarter this year:

Source: ComfortDelGro earnings presentation

Declines were experienced across the board in each sub-segment within the taxi segment.

But in my view, what’s really scary is ComfortDelGro’s use of the three words, “lower operating fleet,” to describe its taxi business in Singapore. During the quarter, the company collected less rental revenue as less people drove its taxis.

This could be a troubling trend.

Grabbed by Uber

Earlier this year, a Straits Times article shared that the number of private-hire cars – owned by ride-hailing services such as Uber and Grab – had exceeded the number of taxis on the road in 2016.

ComfortDelGro’s chief executive officer, Yang Ban Seng, provided this statement in the company’s 2017 first quarter earnings release:

“Our Taxi Business, both locally and overseas, continued to face keen competition but we intend to continue to do our best to maintain our dominant position in Singapore.”

Judging by the moves that ComfortDelGro took in 2016, it is likely that the competition Yang mentioned above refers to companies such as Uber and Grab.

The latest quarterly results from ComfortDelGro could signal the start of a long decline ahead for the company’s taxi segment. How long the decline would last and how ComfortDelGro will respond remains to be seen. Investors will have to look for more clues in the quarters ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.