Analysts have recommended investors to continue accumulating shares in ComfortDelGro (CDG), following the release of the transport operator’s 4QFY2020 results on Feb 15.
CGS-CIMB Research analysts Ong Khang Chuen and Darren Ong have maintained “add” on the counter with an unchanged target price of $1.70, as they believe the “worst is over” for the group.
While they expect an improvement on the group’s earnings due to recovery in ridership, the analysts have reduced CDG’s earnings per share (EPS) for FY2021 and FY2022 by 4.0% to 8.4% due to their “assumption on taxi fleet population”.
The analysts have maintained their target price as they roll over valuations to end-FY2022, pegged to CDG’s five-year historical average price-to-earnings (P/E) of 15.6 times.
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To the analysts, CDG’s core net profit for the 4QFY2020 ended December of $46 million, as well as FY2020’s net profit of $62 million stood slightly below their expectations compared to their forecast of $67 million.
“As CDG’s FY2020 profitability was mainly supported by government grants, dividend payout ratio was lowered to 50% (compared to 80% in FY2019). Final dividend of 1.43 cents implies a yield of 0.9%,” they say.
With the current low rate of community cases and a further ramp-up of the vaccine roll-out in Singapore, Khang Chuen and Darren forecast rail ridership to recover to 90% of pre-Covid-19 levels by the end of FY2021.
“We think that amidst a new normal, there will be less commuting due to increased flexibility in work-from-home arrangements, which may not necessitate daily travel to work. Further paring of taxi rebates in coming months should also help support CDG’s core net profit recovery (+92.5% y-o-y) in FY2021,” they write.
“With capital expenditure (capex) expected to remain low in FY2021 (slower pace of taxi fleet refresh) and management likely to adopt a cautious approach on mergers and acquisitions (M&A), we believe CDG’s stronger financial position will allow it to resume a higher dividend payout in FY21F, along with earnings recovery,” they add.
“Assuming CDG returns to 80% dividend payout ratio (DPR) previously adopted in FY19, we see attractive dividend yield of 5.0-5.8% over the next 3 years.”
The research team at OCBC similarly sees recovery in the longer-term for CDG, following the impact of Covid-19 on its taxi and rail businesses.
The team is also positive on the counter as it has “benefitted from the government’s Jobs Support Scheme (JSS)”.
“For the Singapore public bus operations, CDG is not exposed to fare revenue, as the group operates under the bus contracting model. CDG’s net gearing has remained low, and is in a position to undertake acquisitions when the opportunity arises,” it adds.
As such, they have maintained “buy” on CDG albeit with a lower fair value of $1.90 from $2 previously, as “patience [is] needed” on the group’s recovery.
SEE:ComfortDelGro reports 76.7% plunge in FY2020 earnings of $61.8 mil, remains in black thanks to government grants
RHB Group Research analyst Shekhar Jaiswal has, too, maintained “buy” on CDG with the same target price of $1.90, as he anticipates “strong profit growth” in FY2021, despite its subdued share price in the near-term, and potential earnings headwinds in the UK due to the lockdowns.
Current valuations are also compelling, according to Jaiswal.
On CDG’s results, the weakness y-o-y was “expected”. However, the 8% q-o-q improvement in revenue and 86% q-o-q rise in PATMI stood “in line” with Jaiswal’s expectations.
“We maintain that gradual normalisation of business activities in Singapore, and CDG’s other key markets, should support an improvement in public transport ridership and the stabilisation of the taxi business in 2021,” he writes.
“This should translate to more than 200% profit growth for the year. Earnings recovery in its overseas markets will likely be visible in 2HFY2021. Based on current forecasts, we estimate that a full recovery in earnings, to pre-Covid-19 levels, could take more than two years,” he adds.
A third analyst, PhillipCapital's head of research Paul Chew, has also maintained “buy” on the transport operator with an unchanged target price of $1.83.
In his report, Chew says the path to CDG's earnings rebound is "clear", that it will be led by taxis.
He adds that the group is his "preferred transport proxy for a normalisation of economies as lockdowns ease".
"Rental waivers Comfort dished out in 2020 amounted to $116 million, according to our estimate. Waivers planned in 1QFY2021 could amount to around $13 million. If taxi takings continue to improve, these waiver can end in 1QFY2021," he writes.
The longer-term challenge for its taxi business, however, is its continuous decline in its fleet size, which saw a 11.7% y-o-y drop to 9,444 in 2020. That said, Chew sees CDG's pivot overseas for growth as an initiative that could help the segment.
CDG's rail operations, in the near term, could "remain in the doldrums amid rising costs of maintaining an old fleet".
"The latest data from January suggests rail passenger traffic was down 29% y-o-y in the month. Continued working from home remains a major impediment to a recovery to pre-pandemic levels," he says.
"Australia is its largest overseas profit contributor, where we expect a recovery in 2021. Comfort has invested $1.24 billion in Australia, only slightly below Singapore’s $1.36 billion. Revenue in Australia dipped only 3% in 2020 to $608 million, as scheduled bus services were minimally disrupted. Earnings, though, halved by 54% to S$35.7mn due to soft taxi revenue, impairment charges for taxis and higher wage costs. Government relief was a minimal $2.1 million," he adds.
Shares in CDG closed 2 cents higher or 1.3% up at $1.59 on Feb 17.
