■ Taxis returning to growth mode. With 700 new taxis ordered in May 2018, we expect 2018 to be an inflection point for CD’s taxi fleet and expect a 1.1% YoY fleet increase to 13,387 in 2018E, vs -21% in 2017, with 99% utilisation from 3Q18 (4Q17 trough 95%) driving an EBIT turnaround. In our view, taxi competition should ease with the Uber/Grab merger as predatory incentives have ceased and tighter regulations on the PHC market are likely. Punitive tax measures on PHC drivers from 2018, where cash income is reduced by 24% vs taxi drivers is a further deterrent. We believe new entrants are unlikely to alter the benign competitive dynamics due to supply constraints, with two-thirds of drivers unlicensed ahead of the 30-June deadline.
■ Organic and inorganic growth-drivers underappreciated. We believe that the market is underestimating the operating leverage effects from the Downtown Line in 2018. Together with a recovery in taxi earnings, our 2018- 20E EPS are 7-11% above consensus. With CD’s board now aiming to move into net debt to drive inorganic growth, we estimate 7% potential accretion to our 2019E PATMI estimates should CD deploy its net cash of S$298 mn.
Source : Credit Suisse Asia Pacific Equity Research