SINGAPORE (May 14): RHB Research and CGS CIMB Securities are hanging to their “neutral” and “hold” calls on ComfortDelGro (CDG).
“We believe CDG needs to finalise a definitive strategy for private hire car business soon,” says RHB analyst Shekhar Jaiswal.
And although CDG is embarking on an M&A spree, CGS CIMB says that is meant more for future growth.
Meanwhile, management reportedly wants to move into the private hire space and is open to considering other avenues to enter the segment beyond its discussions with Lion City Rental’s (LCR), says CGS CIMB.
CDG is reportedly in talks with Go-Jek to ensure that it could run the fleet with Go-Jek’s app.
CGS CIMB analyst See says CDG has embarked on $140 million worth of acquisitions year to date in its bid to grow its other businesses and has guided that it is still in the market for M&A opportunities.
To recap, CDG’s 1Q18 profit of $66.3 million accounted for 22% of consensus’ 2018 profit estimates due to lower than estimated performance of taxi business.
See: ComfortDelGro posts 19.6% drop in 1Q earnings to $66.3 million on absence of one-off gain, higher costs
Singapore public transport 1Q18 operating profit rose 57.9% y-o-y to $20.6 million due to better revenues from higher mileage operated and one-off recoveries of Seletar pre-operation costs and higher income from the provision of shuttle services.
Ridership increased for rail operations but it still faced losses on account of the start-up of the Downtown line that was guided to break even in FY19F. CDG also guided that the New Rail Financing Framework (NRFF) will be implemented on the North-East Line and Sengkang-Punggol LRT (SPLRT) in 2Q18.
Following the departure of Uber, CDG indicated that the competitive landscape in taxi business has rationalised. There has been a small but visible improvement in demand for taxis with CDG witnessing a net addition of taxi drivers to its fleet.
With taxi woes now over, CGS CIMB See expects taxi EBIT to stay flat, versus her previous expectations of a y-o-y drop. As such, she is lifting its FY19F EBIT to $113.6 million from $94.2 million. This leads to overall FY19/20F net profit increasing.
RHB Jaiswal is increasing 2018F-2020F earnings by 11%-14% to account for higher revenue from public transport services and a stable outlook for Singapore taxi business as compared to our prior expectation of a decline in revenue.
As at 1.42pm, shares in CDG are up 2 cents at $2.35 or 15.7 times RHB FY18F earnings.
