Policy changes to the point-to-point (P2P) transport industry put forward by the government are deemed positive to taxi operators here.
"While the timeline for implementation has not been finalised, we view them as positive for the taxi industry and especially for CDG, which is Singapore’s largest taxi operator, says RHB Bank Singapore's Shekhar Jaiswal, who has kept his "buy" call and $1.65 target price on the stock.
For one, taxis can be used up to 10 years, and not capped at 8 years. This will allow taxi operators to enjoy longer "daylight" on their assets and recover the vehicle costs over a longer period, thereby translating into lower taxi rentals.
Jaiswal estimates this can help make taxi rental now charged by CDG more in line with the faster-growing private hire fleet, which has taken market share from traditional taxi operators.
"CDG currently offers a permanent 10% rental rebate to taxi drivers to keep its rentals competitive and continue attracting drivers. We think CDG could reduce/remove these rebates once the changes are implemented," says Jaiswal in his March 6 report.
Next, taxis are not required to undergo inspection for roadworthiness as frequently. For CDG which maintains an adjacent vehicle inspection business, this move might reduce intersegment revenue, Jaiswal believes this will still help translate to lower taxi operating costs.
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The government will ensure that net cost savings will be passed on to taxi drivers, which will help attract more people to join this line, thereby addressing this key concern of the operators.
Changes to the P2P operating framework aside, CGD should see "good profit growth" in the current FY2024 from higher Singapore rail revenue, continued improvement in its UK public transport revenue and stronger Singapore taxi earnings amidst higher fares and commission rates, new fees for its Zig platform bookings.
The company is also likely to see improvement in its China taxi business, and contributions from recently announced acquisitions, says Jaiswal.
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DBS Group Research similarly agrees that the proposed changes are positive for taxi operators, especially with the lifespan extension from 8 years to 10, which might lower depreciation costs by up to 20%.
On the other hand, DBS points out that taxi operators may need a higher capital outlay for COEs, which will be 10 years, instead of eight years.
"We do not see an issue for Comfort taxis given its strong balance sheet," says DBS, which has also kept its "buy" call and $1.67 target price.
The lower inspection frequency for taxis less than three years old to once a year will also reduce operating costs with the reduced downtime and engineering costs.
"While it was indicated that LTA will work with operators to ensure the cost savings are passed on to taxi drivers, and hence muted effect on significant improvement in profits, all else constant, we believe this could lead to a better outlook for the taxi industry and we could see fleet expansion again," says DBS.
From a peak of more than 28,000 vehicles in 2013, the taxi fleet has more than halved to 13,483 as of Jan 2024.
DBS remains positive on CDG with continued earnings recovery seen from taxis, overseas public transport and accretion from its recent acquisitions.
CDG shares were down 0.74% as at 10.27am to change hands at $1.35.
