SINGAPORE (June 22): RHB Group Research is keeping its “buy” call on taxi and public transport operator ComfortDelGro with a target price of $1.65.
This came on the back of the company announcing last Friday that it plans to jointly bid for managing the operations and maintenance (O&M) of Lines 16 and 17 of Grand Paris Express (GPE) along with RATP Dev and Alstom, its joint venture (JV) partners.
In a Monday report, analyst Shekhar Jaiswal says, “Given the strong credentials of all three JV partners in managing O&M for metro projects, we see the JV as a strong contender in the tendering process. If successful, Comfort should see earnings contribution from this project in 2024.”
Comfort has long aspired to grow its business outside Singapore and this joint bid builds upon its strong capabilities in the public transport business. It has been reported that Alstorm will be supplying the rolling stock for the Lines 16 and 17.
The 29km long Line 16 of GPE is expected to be operational by 2023, while the 27km long Line 17 will open in phases, between 2023 and 2030. The expected daily ridership for Lines 16 and 17 are 200k and 130k-160k, respectively.
“We understand that the O&M contract for Line 16 and 17 will be cost-plus with no fare revenue risk, implying a low-risk, steady margin and strong FCF generating business opportunity,” says Jaiswal.
Additionally, such potential contract wins and/or business acquisitions along with expectation of strong earnings revival in 2021 could support the analyst’s “buy” rating.
Meanwhile, Ang Wei Neng, CEO of ComfortDelGro Taxi, noted that in addition to offering rent waivers, Comfort’s efforts to create alternate sources of income for its taxi drivers have resulted in the number of trips for each taxi increasing by more than 30% on average, since the start of Phase 1 of Singapore’s reopening.
With Phase 2 of the reopening now in place, the analyst is observing whether such gradual improvement can be sustained over the rest of the year. A better-than-expected revival in economic growth and consumer confidence could imply lower losses for taxis in 2020, thereby lifting consensus estimates.
“Given expectations of a strong earnings recovery in 2021, Comfort should trade above its historical average. Also, winning of new business contracts and potential earnings accretive acquisition could further lift profit estimates,” says Jaiswal.
As at 3.00pm, shares in ComfortDelGro are trading at $1.59 or 1.3 times FY20 book with a dividend yield of 4.2%.
