ComfortDelgro Corporation Ltd (SGX: C52), or CDG, is a land transport conglomerate that operates bus, train, and taxi services. The group has a total fleet size of 43,000 buses, taxis, and rental vehicles, and it has operations in China, the United Kingdom, Ireland, Australia, Vietnam, and Malaysia.
CDG has seen its taxi division come under pressure from ride-hailing companies such as Uber Technologies Inc (NYSE: UBER) as well as Grab. The latest new entrant into the Singapore market is Indonesian ride-hailing giant Go-Jek, and the company has been aggressively promoting its services through marketing campaigns. CDG has borne the brunt of aggressive pricing strategies that have shifted loyalty from the incumbent to these new start-ups, and also caused drivers to change their allegiance and drive for its competitors.
Let’s take a look at how the taxi division has fared since the arrival of ride-hailing companies and see if there may be an impending recovery.
5-year revenue trends
Recall that Uber first entered the ride-hailing scene in 2013, but it only started becoming more aggressive with promotions and marketing in 2016 onwards. Grab also joined the fray around the same time, and both ride-hailing companies were poaching drivers and enticing customers away from CDG. This caused revenue from 2015 to 2018 to see consistent declines, from S$941 million to S$726.5 million.
5-year margin trends
Though revenue has been hit in the last few years, segment operating margin managed to stay resilient, hovering between 16% and 18%. This demonstrates that the taxi segment has managed to shrink its expenses in line with the fall in revenue, and margins have stayed relatively intact.
Taxi fleet size
CDG’s taxi fleet size shrank significantly in 2017, falling by 20% year on year as the other ride-hailing companies ramped up their own fleets. The fleet continued to shrink further in 2018, but the rate of decline has lessened as the market became saturated with taxis and private-hire cars. With Uber’s exit from Singapore in 2018 and CDG’s taxi fleet falling to a 10-year low, it appears the worst may be over for the group.
In early May 2018, CDG announced that it had bought 200 new taxis, its first purchase in 18 months. Just a week later, CDG called for a tender for the supply of 500 more taxis, with CEO Yang Ban Seng saying at the time that “with reduced subsidies and incentives for drivers and riders by ride-hailing app operators … competition will be on a more level playing field.” The Straits Times also reported that CDG’s idle fleet is now below 2% — it hit a peak of around 5% in May 2017.
A slow, gradual recovery
While the worst seems to be over for CDG’s taxi division, it appears any recovery will be slow and gradual, as the industry has now undergone a permanent structural change. CDG’s fleet may grow to around 13,000 by the end of 2019, but this is technically not a “recovery” — it’s merely a rebound off the 10-year low.
In its Q2 2019 earnings report, CDG’s taxi division continues to see an 8.3% year-on-year decline in revenue from S$182.1 million to S$166.9 million, but segment operating margin improved to 17.8% from 17.5%. It appears that CDG is not totally out of the woods yet, and that investors should remain cautious on the division’s prospects.
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.