CGS-CIMB analyst Ong Kang Chuen and Cezzane See have upgraded their rating on ComfortDelGro (CDG) to “add” from “hold” with a raised target price of $1.70, compared to $1.40 previously.
The analysts said they are “positive” that there is room for further relaxation of social- distancing measures in Singapore, which will aid ridership recovery.
They expect public transport ridership in Singapore to return to about 90% of pre-Covid levels by FY21F, compared to only about 55% in August 2020. This is coupled with new local community Covid-19 cases currently at low levels.
Furthermore, they also think it is likely that the government could loosen the work- from-home arrangements in the coming months, increasing mobility of Singaporeans.
Ong and See also expect a continued moderation of taxi rental rebates. CDG recently announced that it will be providing a 25% rental waiver for all taxi drivers from September 16 to October 31. Beyond that, CDG also committed to at least match the $10/day Special Relief Fund (SRF) that the government will be extending to drivers till March 2021.
This reflects continued moderation in taxi rental rebates, as CDG offered a 40% rental rebate from July to August, and a 30% rebate from August to September.
Assuming no additional relief apart from the committed amount for SRF beyond Oct, we believe CD’s taxi segment could return to the black in 4Q20F.
The Ministry of Manpower and Ministry of Finance are also reportedly studying the possibility of extending the Self-Employed Person Income Relief Scheme (SIRS). If realised, Ong and See said taxi drivers’ earnings will be better supported and CD’s taxi fleet size stabilised,
As such, they cut their FY20 earnings per share (EPS) by 4.8% to factor in higher taxi rebates, but raise their FY21F EPS by 0.5% due to higher government relief.
The analysts said that “the worst is over” for CDG, and see net profit recovery in FY21F. They also believe the market “has yet to fully factor in the recovery scenario.”
Potential catalysts for CDG include bus package tender wins, rail financing policy reform and earnings-accretive mergers and acquisitions (M&A), while downside risks include a steeper taxi fleet decline, slower ridership recovery and a major resurgence of Covid-19 in geographies CD operates in.
As at 12.49, shares in CDG traded at $1.48, with an FY20 price to book ratio of 1.25 and dividend yield of 2.03%.
