Its promotional rental rates of $38-$50 a day are too high.
ComfortDelGro Corporation's (CDG) earnings may be dragged by its acquisition of a 51% stake in Uber's subsidiary Lion City Holdings (LCH), DBS Equity Research said.
According to an analysis, its advertised promotional rental rates ranging from $38-$58 a day is not profitable for the firm.
However, assuming there is harmonisation in rental rates and the promotional rates are subsidized by Uber, LCH may still be able to make 1-4% profits.
However, this does not take into account significant cuts in rental rates for taxis.
"While we understand that CDG has introduced various schemes in a bid to be more competitive against private hire vehicles (PHV) rental companies, the rental gap between taxis and PHV remains," said DBS analyst Andy Sim.
At this stage, it is unclear if rental rates would move closer, with a narrower gap between the two categories, Sim added.
Moreover, DBS Equity Research forecasts a 12% fall in taxi revenue in Singapore in 2018, following a similar 12% for the year.
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