DBS Group Research analyst Andy Sim has picked ComfortDelGro (CDG) as his top pick for the land transport sector, maintaining his “buy” rating on the counter with a target price of $1.96.
He believes valuations are attractive at 1.2x price-to-book value (P/BV) which is -2 standard deviation (SD) of historical mean, and he said that the market has not priced in Phase 3 recovery for CDG.
The Land Transport Authority (LTA) on September 15, announced an additional $112 million in the Special Relief Fund (SRF) to support the Point-to- Point (P2P) industry. In the same statement, LTA indicated that with the resumption of some activities in Phase 2, demand for taxi and Private Hire Cars (PHC) has increased, but ridership is still around 70% of pre-COVID levels.
The bulk ($106 million) of the SRF will go towards providing rental reliefs for active taxi and PHC drivers. This amounts to rental relief of about$10/day per vehicle, same as the original relief announced earlier in February 2020.
With that, LTA indicated that taxi operators have also pledged to continue providing matching rental rebates worth a total of $29 million to hirers.
For CDG, it has also announced a 25% rental waiver for its hirer from September 16 to October 31 Oct. He estimates that on average, the waiver could amount to about $30/day, of which $10 is from the government’s SRF.
CDG has also indicated that it would continue to at least match the $10/day SRF that the Government will extend till March 2021.
LTA said on the same day, that the minimum age for Private Hire Car Driver Vocational Licence (PDVL) drivers has been raised to 30 years. New applicants must also be Singapore citizens with driving experience of at least one year.
He said this aligns the PDVL with the Taxi Drivers Vocational Licence (TDVL), and this will help limit potential new drivers causing further demand-supply distortion, especially in the current period of lower demand.
Sim also expects weaker players to exit the industry as “the occurrence of COVID and its impact will catalyse the consolidation of the P2P industry.”
As at 12.42pm, shares of CDG traded at $1.53, up four cents or 2.68% higher than its previous close of $1.49.
