Photo: ComfortDelGro
Analysts from Maybank Kim Eng, PhillipCapital, RHB Group Research and UOB Kay Hian have kept their “buy” calls on ComfortDelGro (CDG) after the transport operator posted 56% higher profit after tax and minority interest (PATMI) of $56.2 million for the 1QFY2021 ended March on May 12, which stood in line with or ahead of all three brokerage’s expectations.
See: ComfortDelGro posts 56% growth in 1Q21 PATMI, announces plans to unlock value in Australia
The recovery was driven by higher taxi operating profit as well as $33 million in Covid-19 relief from the government.
CDG’s taxi division registered the most improvement for the group, due to a recovery in numbers to pre-Covid levels in China, as well as lower rental rebates given to taxi drivers in Singapore.
Maybank Kim Eng analyst Kareen Chan has maintained her target price of $1.88.
To Chan, she continues to “like” CDG on its exposure to the recovery of domestic transport.
“The impending review of Downtown Line financing framework and potential restructuring of its Australia bus assets remains a catalyst. Key risk includes further lockdowns in operating countries,” she writes in a May 13 report.
“[The] taxi industry is showing signs of stabilisation with regulators levelling the playing fields of players, while ride-hailing companies (Grab and GoJek) are shifting their focus to other businesses,” Chan adds.
In addition, Chan is also positive on CDG’s seeking to expand its geographical exposure through overseas acquisitions, with its overseas businesses taking a larger proportion.
For the 1QFY2021, Singapore is the largest EBIT contributor at 64%, with Australia coming in at 15%. The UK and Ireland came in at 12%, while China contributed 9% to CDG’s overall EBIT.
Chan also notes that CDG’s financial metrics have become more defensive following the consolidation of Grab and Uber in 2018, coupled with increased contribution from public transport and overseas expansion.
“[CDG’s] public transport business continues to be the key contributor while taxis and overseas expansion provides incremental growth,” writes Chan.
Upside swing factors include faster-than-expected stabilisation in the taxi industry, earnings-accretive acquisitions overseas, as well as higher-than-expected passenger numbers for the Northeast Line (NEL) and Downtown Line (DTL) or new bids for railway lines under the contract model.
However, downside factors include higher-than-expected operating cost for railways in Singapore, a decline in the utilisation of taxis or heightened competition from ride-hailing players, and lower-than-expected ridership in Singapore.
PhillipCapital’s head of research Paul Chew has kept his target price of $1.83, as well as his forecasts for the FY2021 unchanged.
To him, he sees the group headed towards a “slow road to recovery” due to Singapore’s return to lockdown.
That said, the group is “rolling in cash”. Free cash flow (FCF) for the 1QFY2021 surged to $101.6 million from the $38.6 million in the 1QFY2020. Cash from operations stood at $224.9 million from the $105.5 million in the 1QFY2020.
“We are still modelling a recovery this year albeit delayed. Another share price driver will be the restructuring of Downtown Line revenue model. In Australia, Comfort is looking to unlock value from its operations via an IPO or partial sale. Australia accounted for 19% of FY2019 EBIT,” he writes.
“While the timing is unclear, any change in the revenue model for the key Downtown Line from fixed fees to risk- sharing with the government could provide stability to its public transport business,” he adds.
RHB analyst Shekhar Jaiswal has upped his target price estimate on CDG to $2.10 from $1.90 previously, implying 21 times FY2021 price-to-earnings (P/E).
“This is higher than its 10-year average, but seems reasonable in view of the expected strong earnings recovery,” writes Jaiswal in a May 14 report.
Acknowledging that CDG may sustain near-term share price weakness due to potentially lower earnings for the 2QFY2021 on the back of Singapore’s ongoing restrictions, Jaiswal says he sees the the weakness as a “buying opportunity”.
He has also kept his profit growth estimates for the FY2021.
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“While there remain downside risks to earnings – if the current Covid-19-related restrictions in Singapore are extended – we continue to believe that a gradual normalisation of business activities over the next 12 months should support an improvement in public transport ridership and the stabilisation of the taxi business,” he writes.
“This should translate to strong profit growth in 2021- 2022. Earnings recovery in the UK will likely be visible in 2HFY2021 once local restrictions are gradually removed. We estimate that a full recovery in earnings, to pre-Covid-19 levels, could take more than three years,” he adds.
However, in the next 12 months, Jaiswal estimates that the operating environment “should continue to improve, domestically and in overseas markets. Value unlocking in Australia could also be a re-rating catalyst,” he writes.
Jaiswal is also positive that the group is on track to declare an interim dividend for the FY2021 due to the higher EBIT improvement and PATMI during the 1QFY2021.
On the group’s decision to unlock the value of its assets in Australia, Jaiswal says he believes the move will offer an additional re-rating potential for CDG’s share price.
UOB Kay Hian analyst Lucas Teng, has also upped his target price estimate to $1.95 from $1.85 previously. The new target price is pegged to 17.9 times FY2021 P/E or its forward mean P/E, excluding outliers, he says.
Despite the enhanced Covid-19 restrictions, Teng says he views CDG as a proxy for recovery in the medium term.
On the group’s 1QFY2021 results, Teng says he has factored in for a “slightly stronger 2HFY2021”, which put the quarter’s results as “slightly above expectations”.
On this, Teng has raised his earnings estimates for the FY2021 to FY2023 by 1% to 5%.
“To account for a faster-than-expected improvement in overseas public transport, we raise our earnings for 2021 by 5%. 2022-2023 earnings are raised marginally,” he writes.
Valuations are still deemed attractive as CDG trades at -1 standard deviation (s.d.) to its mean P/E and -2 s.d. to its mean price-to-book (P/B) at 2.0 times.
“At 2 times FY2021 book value, CDG would be priced at approximately $2.50/share,” he says.
Shares in CDG closed 5 cents lower or 3.1% down at $1.58 on May 14, or 1.3 times P/B, according to UOB Kay Hian’s estimates.
