Analysts from UOB Kay Hian, Maybank Kim Eng Research, CGS-CIMB, OCBC Investment Research and DBS Group Research have all maintained their “buy” and “add” calls on ComfortDelGro (CDG).
Target prices from these brokerages have been maintained at $1.90, $1.88, $1.80 and $2 respectively, although DBS has lowered its target price from $1.99 to $1.94.
DBS analysts Paul Yong and Yong Woon Bing say the target price is revised based on 1.53 times FY2021 price to book value (P/BV), which is -0.5 standard deviation (SD) of its historical average.
The counter is currently trading at 1.3x P/BV, or -1 SD of its average, which to them is “attractive”.
CDG saw a hiccup in its earnings recovery, as 2QFY2021 saw a decline in earnings due to the implementation of Phase 2 (Heightened Alert) measures in Singapore. 2Q21 Profit After Tax and Minority Interests (PATMI) fell from $56.2 million in 1QFY2021 to $34.8 million in 2QFY2021.
OCBC’s Research Team observes that this resulted in a 19% q-o-q decline in average daily rail ridership.
In addition, ridership in the point-to-point industry fell to 55% of pre-Covid levels, compared to 80% before Phase 2 (Heightened Alert), and taxi rental rebates that were borne by CDG rose as well.
“As Singapore gradually seeks to return to normalcy with increasing vaccination levels, things should improve for ComfortDelgro as well,” the team writes.
CGS-CIMB’s Ong Kang Chuen and Darren Ong note that despite the loss in 2QFY2021, CDG’s 1H net profit reversed y-o-y from a $7 million loss to a net profit of $91 million.
They elaborate that Singapore operations saw lower profitability q-o-q on the back of lower social mobility and government grants tapering off, while overseas operations generally saw improvement in 2QFY2021.
The duo highlighted that the taxi segment was the hardest hit, as CDG offered substantial rental rebates to drivers throughout the 1.5 months of Heightened Alert.
But with a profitable 1HFY2021, CDG resumed its interim dividend payout with a distribution per share of 2.1 cents, implying a payout ratio of about 50%.
The group received about $57 million of government support in 1HFY2021, compared to $87 million in 2HFY2020.
Moving forward, the CGS-CIMB analysts are forecasting a continued easing in social distancing with a high vaccination rate in Singapore.
This will, in turn, support ridership recovery. They add that “we forecast rail ridership to recover to 80% of pre-Covid-19 levels by end-FY2021, and expect taxi rental rebates to be lowered further (currently 35%). Excluding government grants, we forecast CD to achieve an operating profit of $98 million in 2HFY2021.”
Agreeing with the domestic outlook, UOB KH analyst Lucas Teng points out CDG’s overseas segments, saying that For Australia, the group’s public transport schedules remain stable, while ad hoc charter services increased.
He estimates that operating profits in Australia saw an improvement of 24% q-o-q, though he also notes that 2QFY2021 has borne the brunt of the lockdown measures seen in Australia, but near-term weakness should be expected for Australia from 3QFY2021 onwards.
As for the UK, Teng observes that the public bus services ran on full schedules. There was additional support from the government chartering business, though its unscheduled coach services do not appear to have taken off yet. CDG remains at “operating breakeven levels” in the UK.
Maybank KE’s Kareen Chan sums it up by saying that CDG’s management sees activity levels are recovering slowly across its key operating countries, despite further restrictions being imposed due to outbreaks of new variants.
“Recovery could remain gradual and uneven. Nevertheless, the reopening prospects of Singapore remain bright, in our view,” Chan highlights.
“Additionally, the management of Covid-19 situation is becoming clearer as compared to last year, with the vaccination rate of Singapore and the UK reaching >70%. As a result, we believe 2H2021 earnings are likely to improve.”
Shares of CDG closed at $1.68, with a FY2021 price to book ratio of 1.3 and dividend yield of 3.2%
Photo: ComfortDelGro
