Here’s why analysts think threats over ComfortDelGro’s taxi business are overblown

They’re not concerned over Uber and Grab.

The transportation firm’s taxi business form 36.4% of its operating profit, but threats brought about by private car hire services may have little to no negative effect.

According to a report by OCBC, while taxi rental fell from an average of two weeks to none at 1Q16, CDG’s taxi hire-out rate was still maintained at near 100% as at end-1Q16.

“With more than 90% of taxi revenue derived from taxi rental income, we believe CDG’s earnings will continue to be resilient as long as CDG put in efforts to maintain hire-out rate at ~100%,” OCBC noted.

Additionally, the report adds that while taxi earnings growth may slow due to controlled slowdown in fleet growth, analysts do not expect a material fall in taxi contributions as a result of private hire car services

Meanwhile, its earnings are also expected to remain resilient despite the UK leaving the EU.

“Based on FY15/1Q16 results, UK/Ireland formed 20.5%/16.5% of ComfortDelGro’s (CDG) total operating profit. Going forward, assuming CDG’s exposure to UK/Ireland remains within the range of 16.5%- 20.5%, a 10% depreciation in GBP against SGD is estimated to result in a 1.7%-2.1% decline in its total operating profit,” OCBC noted.

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