Analysts from UOB Kay Hian Research, DBS Group Research, CGS-CIMB Research, Maybank Securities, RHB Bank Singapore and PhillipCapital are all keeping their “buy” and “add” calls following ComfortDelGro C52 ’s (CDG) earnings of $49.9 million for the 3QFY2023 ended Sept 30.
See more: ComfortDelGro 3QFY2023 earnings up 54.5% y-o-y on improved public transport segment
The analysts at UOBKH, DBS, Maybank and RHB have all raised their respective target prices to $1.69 from $1.61 previously, $1.67 from $1.65 previously, $1.55 from $1.50 previously and $1.50 from $1.46 previously.
Meanwhile, the analysts at CGS-CIMB and PhillipCapital have both maintained their target prices of $1.55 and $1.31 respectively.
CDG’s earnings for 3QFY2024 were 54.5% up y-o-y, and 9.2% higher q-o-q as the group’s public transport segment improved. Its margin also increased to 5.0%, up over the 3.4% recorded in 3QFY2022 and 4.8% in 2QFY2023.
UOB Kay Hian analysts Llelleythan Tan Yi Rong and Heidi Mo like CDG for its strong underlying performance during the quarter and its backing by favourable tailwinds. In their report, Tan and Mo note that both of CDG’s 9MFY2023 segmental revenue and operating profit formed 69.7% and 65.8% of their full-year forecasts, with operating profit “slightly below” expectations.
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They write: “The slight miss was largely due to lower-than-expected core operating margins of 4.3% in 3QFY2023, which we expected at around 4.8% to 5.0% and would have brought CDG’s 9MFY2023 operating profit to around 70% of our full-year forecasts.”
Under CDG’s public transport segment, the analysts expect CDG’s margin expansion to continue into FY2024 due to improving rail ridership in Singapore and its UK bus contract renewals and indexation which have started to come through.
The analysts note that roughly 70% of UK bus contracts underwent cost indexation by end-3QFY2023, with the remaining contracts expected to be completed within the next two quarters.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
Coupled with the upcoming 7% fare increase in Singapore beginning in early December, Tan and Mo expect the ongoing UK indexation and renewals to help support CDG and expand segmental margins going into FY2024.
Meanwhile, margins for CDG’s Australian operations softened slightly on a sequential basis, but are expected to stay largely stable going into 4QFY2023.
While CDG’s 9MFY2023 taxi operating profit underperformed at 61.1% of Tan and Mo’s full-year forecasts due to the higher q-o-q operating costs and intense pricing competition, they expect potential upward revisions to CDG’s 5% online commission rate in 4QFY2023 and FY2024, which would help close in on the group’s peers and boost segmental margins.
CGS-CIMB analyst Ong Khang Chuen sees CDG’s earnings recovery picking up steam in 2HFY2023 with an 84% y-o-y patmi growth, while PhilipCapital’s Paul Chew expects the group’s earnings growth to sustain into FY2024, supported by the re-pricing of bus contracts in the UK, improvement in bus efficiency in Australia as drivers return, platform fees raising taxi margins and higher fares driving up Singapore rail profitability.
Maybank analyst Eric Ong adds that CDG is armed with a strong net cash balance of $500 million, and that the group is constantly exploring accretive merger and acquisition (M&A) opportunities, including overseas and adjacent segments to sustain its long-term growth.
He writes: “Its partnership with Yinson GreenTech will add 400 EV chargers in Malaysia, while CDG Ventures also invested US$2 million ($2.6 million) in car-sharing platform Drive lah that will supply a maximum of 3,000 vehicles to Drive mate in Australia.”
Share price catalysts
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On the group’s potential share price catalysts, the analysts agree on CDG’s earnings-accretive overseas acquisitions, bus tender contract wins and increase in taxi commission rates, while RHB analyst Shekhar Jaiswal adds that “more rational competition” in the point-to-point transport segment could also be a key driver.
Conversely, the analysts point to CDG’s slower margin recovery due to the inability to pass on costs, higher-than-expected operating costs amid current inflationary pressures and a decline in taxi utilisation or heightened competition as possible downside risks.
CGS-CIMB’s Ong adds that negative foreign exchange (forex) translation could also have an impact given the strong Singapore dollar, while DBS analysts Andy Sim and Chee Zheng Feng include the resurgence of high inflation in the UK leading to losses due to indexation lag effect as another potential factor.
Changes in earnings estimates
UOBKH’s Tan and Mo have decreased their FY2023 patmi forecast to $183.4 million from $195.7 million previously, but increased their FY2024 to FY2025 patmi forecasts to $238.2 million from $226.9 million previously, on the back of lower margin assumptions for FY2023 and higher contributions from the public transport segment for their FY2024 to FY2025 patmi forecasts.
DBS’s Sim and Chee have similarly raised their FY2023 to FY2024 earnings marginally by 1% to 4%, while Maybank’s Ong has tweaked his FY2023 to FY2025 earnings per share (EPS) by 3% to 4% due to slightly better earnings before interest and taxes (ebit) margin assumptions.
RHB’s Jaiswal has also trimmed his FY2023 earnings by 4.6% but raised his FY2024 to FY2025 figures by 4.1% and 3.1% respectively, attributing it to higher operating costs for FY2023 and anticipated improvements in both the public transport as well as taxi and private hire businesses in FY2024 to FY2025.
PhillipCapital’s Chew has lowered his FY2023 revenue by 4% and maintained his patmi, while CGS-CIMB’s Ong noted no changes in his estimates.
Shares in ComfortDelgro closed flat at $1.33 on Nov 17
