SINGAPORE (Jan 12): Maybank Kim Eng is maintaining its 'buy" on ComfortDelGro with $2.40 price target on expectations earnings should improve in 2018 after a lacklustre 2017 on better prospects for the rail and overseas businesses in 2018.
Furthermore, Comfort is finally joining the club of other taxis in Singapore offering dynamic pricing -- starting next Friday. Although local authorities in March cleared such efforts, which allow for fares the increase at times of high demand, Comfort held off. But that has changed after the company's tie-up with Uber.
"Maintain 'buy' and DCF-based target price of $2.40 which implies 16 times FY18 earnings," says analyst John Cheong in a Thursday report.
Cheong says Comfort tie-up with Uber should be earnings accretive as the latter's car rental business is not loss-making at a core level and the transport operator could also reap revenue synergies from activities including vehicle maintenance and inspection.
In addition, the enlarged platform will enable Comfort to offer more choices to its drivers and customers. For instance, Uber’s booking platform could offer more booking jobs for Comfort’s drivers and they could opt to drive private hire vehicles. For consumers on Uber’s platform, they can have access to more vehicles. There is also potential for tie-ups with Uber beyond Singapore.
Meanwhile, the earnings drag from DTL3 should narrow significantly in 2018, as revenue contributions have started since its opening in Oct 2017.
"Based on our estimate, rail EBIT loss could narrow from $25 million in FY17 to $5 million in FY18, which should lift earnings notably. Daily ridership for the DTL in 2017 exceeded 400,000 and is not too far from the target of 500,000," says Cheong.
Expansion of overseas businesses is also another priority for Comfort in FY18. For the UK, Comfort could grow its business by tendering for routes outside of London. For Australia, it 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 12.21pm, shares in Comfort are trading at $2.01 or 14 times FY18 earnings.
