Facing heavy disruption in the taxi industry, ComfortDelGro (CDG) has finally come up with adaptive measures.

This comes months after its competitors’ tie-ups with Grab and the launch of an initiative that allows riders to book a ride for flat fees.

Adding 15,000 comfort taxis to Uber’s car fleet of 15,000, it will be near to Grab’s total fleet of 10,000 non-comfort taxis and 25,000 rental cars.

Seemingly looks like a chest-beating game, both platforms will try to use it to entice riders based on a larger fleet base.

Hopefully, this alliance of CDG and Uber will help CDG to apply pressure on the bleeding in its taxi business.

As the market has priced in most of the poor performing taxi segment, any improvements can be viewed as potential catalysts to the stock price.

Bus and railway

Since the opening of Downtown Line, the rail ridership of have risen steadily since the first phrase.

With the opening of Phase 3 later this month, the daily ridership is expected to rise by 50% given that Phase 3 is the longest in the Downtown Line.

In addition, the bus contracting model has given CDG a steady and predictable stream of income. This stream of income will receive an uplift with the new Seletar Bus Package kicking in on 1Q2018.

The 2 public transit service segments will fill in the gap that is left behind by the shrinking taxi sector. Growth in the train segment will give CDG with some buffer against losing out in the taxi business.

Sustainability without taxi

As the woes for CDG is not new, the current price that is 17% down from the start of the year should have priced in most of it.

Assuming that CDG is forced to give up the market of taxis to Grab and Uber, a cash flow model was done using to determine if the company can sustain its dividend payouts.

Assuming zero contributions from the taxi segment, there will be an absence of $0.05 to $0.08 per share in the cash flow.

Given that the balance of the cash flow is at $0.16 to $0.17, the current dividend of $0.10 will still be sustainable. It will translate to a yield of 4.7% to 4.9%.

Conclusion

The tie-up between CDG and Uber will be a game changer for CDG’s taxi segment.

Previous price corrections on the stock would have taken into account a poor performing taxi segment.

If this collaboration works out, it will be a strong catalyst for CDG. This comes as the revenue for CDG is supported by its railway and bus services.

Even without the taxi business, CDG will be able to sustain itself through its bus and railway segment and its overseas exposure.

Investors looking for yield stocks can look at CDG for its attractive yield and stronger stability when compared against dividend stocks such as the telecommunications companies.

After a price correction that went on this year, analysts from Maybank Kim Eng Research upgraded ComfortDelgro Corporation Limited (SGX: C52) to a “BUY” with a target price of $2.40.