Analysts from DBS Group Research and Maybank Securities are positive on ComfortDelGro's (CDG) prospects even as shares in the transport operator have taken a tumble recently.
As at Oct 19, shares in CDG closed at $1.28, down by 7.91% year-to-date (ytd). The transport operator’s current share price levels are also than that of the closing share prices during the Covid-19 lows in most of 2020.
The Singapore research team led by Andy Sim at DBS Group Research have kept “buy” on ComfortDelGro (CDG), as they see the “attractively priced ride” as worth betting on.
As the group’s key markets in the UK, Singapore and Australia have moved towards living with Covid-19 as an endemic, valuations for the counter still remain at historical lows, notes Sim.
“Mobility trends in Singapore have already begun to normalise and this should be reflected in its operating performance,” he writes.
“Even though CDG is in the slow lane of passenger land mobility, the dismal performance of its share price despite improved mobility amid easing restrictions in recent times is an enigma to us,” he adds. “One possibility is that the market could still be fixated on the impact of Covid-19 in the past two years and ignoring its steady recovery as well as its pivot in its business.”
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In his report dated Oct 20, Sim is also positive on CDG’s move to tweak its taxi rental business model with an element of commission sharing which “provides more levers for potential revenue upside” compared to its previous practice of relying solely on fleet expansion and rental rates.
CDG’s ride-hailing competitors are also looking towards a pathway to profitability, which could reduce aggressive pricing discounts on their end, another plus for the SGX-listed transport operator.
Furthermore, CDG could be included in environmental, social and governance (ESG) indices, as it evolves into a sustainability play. The group has so far embarked on multiple initiatives to turn its business segments green. The group has also invested in green projects that include the provision of EV charging infrastructure and a greening of its bus and taxi fleet, the analyst notes.
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To this end, Sim is forecasting CDG’s net profit (pre-ex) for the FY2022 ending Dec 31 to rise by around 27% y-o-y as the group’s key segments register an increase in its ridership and demand. In addition, the analyst sees the group’s net profit returning to 85% and 98% of its 2019 levels by the FY2023 and FY2024 respectively.
On CDG’s upcoming business update for the 3QFY2022 ended September, Sim is expecting the group to see y-o-y and q-o-q improvement.
Summing it up, Sim writes, “We believe the market is looking at its taxi fleet numbers for earnings recovery, but could be missing the plot. Its business model pivot to commission in taxi fare bookings provides more levers for upside, in our view.”
“Furthermore, we believe its defensive traits, net cash position, and steady business (notwithstanding further lockdowns) will help weather the current uncertainties,” he adds.
Sim has kept his target price unchanged at $1.95, which is based on a blend of forward EV/ebitda and P/B valuations.
“We peg CDG to a forward EV/ebitda of 5.3x and P/B of 1.25x, both of which represent the -1 standard deviation (s.d.) level from the 10-year mean,” he says.
Maybank Securities, too, expects CDG to show sequential improvement in the 3QFY2022
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Maybank Securities analyst Eric Ong is also expecting CDG to show sequential improvement in its 3QFY2022 business update.
In his report dated Oct 13, Ong has estimated an underlying patmi of about $46 million, representing a 10% q-o-q increase. According to the analyst, his estimates are based on sequential improvement in CDG’s public transport operations.
The increase in bus and train fares by 4 cents-5 cents in Singapore that’ll take effect from Dec 26 should also help to partly mitigate higher energy prices, Ong notes.
“Even taking into account the stock’s recent exclusion from the Straits Times Index (STI) and general market weakness, we think CDG is grossly oversold on a fundamental basis,” he writes.
However, a key risk includes an unfavourable foreign exchange (FX) translation due to the weaker Australian dollar (AUD) and British pound (GBP).
Under Maybank Securities’ enhanced ESG 2.0 review, CDG has a score of 80, which is well above the brokerage’s average of 50. This is due to good disclosures and strong commitment to sustainable mobility, says Ong.
“[The] transition of its fleet to green vehicles should also lead to better fuel efficiency and lower greenhouse gas (GHG) emissions,” he adds. “Concurrently, the group is seeking to employ route optimisation and on-demand services to improve its operating leverage. This is coupled with gradual recovery in ridership across key markets.”
Ong has kept “buy” on CDG with an unchanged target price of $1.75.
As at 2.52pm, shares in CDG are trading 2 cents higher or 1.56% up at $1.30.
