ComfortDelGro (CDG) on Feb 4 will be embarking on its beta trial of its new ride-hailing service.
The move, which will serve to supplement its 10,000 strong taxi fleet, will involve a small number of private hire cars (PHCs) as the group gauges reception to the service. Upon completion of the beta trial, which is expected to run into March, CDG will assess the response to the service and gradually open it up to more PHC drivers.
On the back of this, analysts are positive on CDG’s outlook and believe that it is on track towards a recovery
RHB Group Research has maintained its “buy” call on CDG with a target price of $1.90.
In a Feb 5 report, analyst Shekhar Jaiswal says, “Amidst a pick-up in public transport ridership, and the stabilising of its Singapore taxi business, ComfortDelGro should continue reporting q-o-q operational improvements in its upcoming results. We maintain that further normalisation of business activities in Singapore should translate to higher earnings in 2021.”
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CDG’s overseas business however is expected to recover at a slower pace, as the analysts predicts earnings recovery for this segment to likely be visible only from 2H2021.
From conversations with taxi drivers, the analysts notes that business has improved significantly from the lows during the circuit breaker period. CDG has also mentioned in its latest business update that ridership has recovered to 80% of pre-Covid-19 levels.
And on its new ride-hailing service, Jaiswal says, “With Grab expected to focus more on non-transport businesses – such as deliveries and its upcoming digital bank – as it plans to undertake an IPO soon, we believe CDG sees this as an opportunity to further cement its position in Singapore’s land transport industry.”
Overall, the analyst views current valuations of 19 times FY2021 P/E as compelling and expects a strong y-o-y earnings growth this year.
Similarly, Maybank Kim Eng continues to rate CDG “buy” with an unchanged target price of $1.88, while recommending investors to short Air Asia.
In a Feb 3 report, analyst Kareen Chan says, “For trading-oriented investors, we recommend a pair trade of Long CDG and Short AirAsia, presenting a total return of 75%. We believe the faster recovery in land transport vs aviation will catalyse the divergence in share price performance.”
SEE: ComfortDelGro trials new ride-hailing service
AirAsia has proposed a placement to raise RM454.5 million ($149.5 million). Chan believes that the budget airline may need to tap equity and debt markets again in the future, given its poor earnings outlook.
In contrast, domestic land transport demand should recover at a faster pace than the aviation sector. On that note, CDG is set to recover in FY2021 onwards, driven by the gradual recovery in ridership and easing of social distancing measures domestically.
As at 11.40am, shares in CDG are trading at $1.58 or 1.4 times FY2020 book with a dividend yield of 1.5%, according to RHB’s estimates.
