Government's move to take taxis out of COE bidding futile

Learn from OCBC why COE prices are unlikely to fall drastically even with the new rule.

The Transport Minister announced on Friday that taxis will be taken out of the COE bidding process from Aug. This would mean that taxis would no longer have to submit bids for COEs under Category A but just pay for COEs based on the prevailing quota premium for that same category. However, COEs for new taxis intended for fleet expansion will have to pay the prevailing quota premium for the Open category.

According to OCBC Investment Research, while this move will hopefully take out the effect of COE bidding by taxi operators, it does not expect COE prices to fall drastically due to the reduced quotas and resilient demand for cars.

Taking as SMRT for example, OCBC said: "SMRT, which added 235 taxis in 1Q13, wil continue to monitor the situation before deciding on whether to renew and increase its fleet further. In the meantime, SMRT’s taxi segmentcontinues to experience revenue and operating profits growth due to greater average taxi hired out fleet."

"Going forward, assuming an unchanged taxi fleet for the rest of the year, this segment should be able to hold its own and maintain reasonable levels of revenue and operating profit contributions (~11% and 3.5% respectively)," it added.

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