SINGAPORE (Nov 14): RHB Research is downgrading its call on ComfortDelGro (CDG) to “neutral” from “buy” with a lower target price of $2 from $2.60 previously, on expectations that the sequential decline in the group’s Singapore taxi fleet and hire-out rate will continue into 4Q17.
The new target price implies a P/E multiple of 14.5 times 2018F estimates, which is close to its historical average forward P/E of 15.2 times.
This comes after the land transport operator last week reported an 8.2% decline in 3Q earnings to $80.1 million, in line with RHB’s expectations, as revenue for its taxi business fell due to higher competition.
See: ComfortDelGro reports 8.2% fall in 3Q earnings to $80.1 mil
In a Monday report, analyst Shekhar Jaiswal says he believes higher revenue from the public transport services segment, particularly the group’s bus businesses across Singapore, Australia and the UK, will continue to grow and drive the group’s earnings ahead.
However, he highlights the possibility of this being outweighed by CDG’s weakness in its taxi business in the near-term.
The analyst has therefore lowered his 2018-19F earnings by 8-13% and reduced his long-term growth rate assumption under the weighted average cost of capital (WACC) model to 0.5% from 1% previously.
“The idle rate for the Singapore taxi business has continued to rise. 3Q17 taxi idle rate stood at 5.4%, compared to 5% in 2Q17 and 3.5% in 1Q17. Taxi fleet size has declined as well. CDG believes that fleet size would continue to decline, amidst rising competition from private car hire services,” observes Jaiswal.
CDG recently said it may have loss less than 100 drivers to its competitor Grab, as opposed to claims in the media that the figure was 2,000-3,000. Jaiswal highlights that CDG is still working out the finer details of its collaboration with Uber, and expects to make a formal announcement as early as next month.
“With lack of clarity on increased dividend payout by CDG, we lower our payout estimate for 2018-2019 to 72.5% (from 75%). Based on our revised payout estimate, CDG offers 5% dividend yield for 2018F-2019F,” notes the analyst.
As at 12.04pm, shares in CDG are trading 4 cents lower at $2.06, or 1.68 times FY18 book.
