SINGAPORE (Jan 11): Maybank Kim Eng is maintaining its “buy” call on ComfortDelGro with a target price of $2.40.
The group on Dec 8, 2017 announced that it would be forming a joint venture (JV) with Uber.
See: ComfortDelGro and Uber finally join forces
In a Thursday report, analyst John Cheong says, “Uber tie-up should be earnings accretive, as Uber’s car rental business is not loss-making on a core level.”
Apart from earnings accretion from acquiring Uber’s car rental business, the group can also reap other revenue synergies, such as vehicle maintenance, as well as the inspection and selling of fuel.
Moreover, Uber’s enlarged platform will enable the group to offer its drivers more choices, in terms of booking jobs and opting to drive private hire, as well as access to more vehicles to its consumers.
Meanwhile, Cheong believes that the group will also see better prospects for the rail segment this year as earnings drag from Downtown Line 3 (DTL3) should narrow significantly, as revenue contributions have started since its opening in Oct 2017.
He believes that earnings in 2018 should improve after a lacklustre 2017 that was due to the group’s declining taxi business and greater losses in the rail segment to support the upfront costs for DTL3.
“Based on our estimate, rail EBIT loss could narrow from $25 million in FY17 to 45 million in FY18, which should lift earnings notably,” says Cheong.
In addition, Cheong also believes that the group’s expansion of overseas business is another priority in FY18.
According to the analyst, the group could grow its UK business by tendering for routes outside of London.
Over in Australia, Comfort could acquire family-owned bus businesses that are synergistic to its existing operations. There are also more organic opportunities as Australia is still in the midst of privatising its public transport system.
As at 11.25am, shares in Comfort are trading at $1.99 or 13.8 times FY18 earnings with a dividend yield of 5.4%.
