RHB has maintained its “buy” rating on ComfortDelGro (CDG) with a target price of $1.65.
The stock is currently trading at $1.40, about 5.3% higher than its 52-week low of $1.30 earlier on Aug 3. It also remains well-supported by a historic low price-to-book value of 1.2 times for FY19.
But analyst Shekhar Jaiswal is not worried. Instead, he says that investors should look past the near-term earnings weakness, and use its current low share price as an opportunity to accumulate the stock.
Although the analyst expects CDG to report a record net loss for 1H20 when it reports it results on Aug 14, he believes that this is only temporary and CDG remains on track to report strong earnings growth in 2021.
As 2020 comes closer to an end, a gradual recovery in ridership for CDG’s public transport business and the stabilisation of its taxi business should support strong earnings growth in 2021.
“We expect CDG to deliver 40% y-o-y profit growth next year. The Street is more optimistic than us about CD’s FY21 earnings, with profit growth forecasted at 59% y-o-y,” says Jaiswal.
However, the expected loss for 1H20 should not come as a surprise, given the decline in public transport ridership and extension of rental discounts to taxi drivers once the circuit breaker measures were implemented.
CDG is also expected to report an impairment of its investments, but Jasiwal said it is difficult to assess the magnitude of impairment charge at this moment.
Although Singapore is well into Phase 2 and social distancing measures have relaxed, the resumption of workplace activities will be more gradual. Nonetheless, the worst is over for CDG as it is well past the lowest point for public transport ridership and the sharpest decline in the company’s taxi fleet.
A faster-than-estimated recovery in public transport and taxi earnings, winning new bus contracts, and an earnings-accretive acquisition should re-rate the stock in the near term.
As at 2.07pm, shares in CDG are trading 1 cent higher at $1.40, giving it a FY20 price-to-book ratio of 1.2 times with a dividend yield of 4.2%.
