SINGAPORE (Sept 29): Maybank Kim Eng is upgrading its call on land transport operator ComfortDelgro (CDG) to “buy” from “hold” while raising its price target on the stock to from $2.25 to $2.40, which implies 16.3 times FY18E earnings per share (EPS).
In a Thursday report, analyst John Cheong speculates that the downside for CDG’s taxi operations has been largely priced in after its 12 million share price correction of 28%.
The analyst has cut his EPS estimates for the group by 1-6% to factor in further taxi weakness, and believes this is captured in his research assumption of a 12-15% fleet size reduction per annum.
Nonetheless, it is in Cheong’s view that a positive outcome from CDG’s potential tie-up with Uber, which was announced earlier in Aug, could reverse its taxi erosion as the group secures Uber’s car rental businesses and leverages on its ride-booking platform.
“The Business Times reported that Uber has around 15,000 cars, similar to Comfort’s 15,000 cabs. This is close to Grab’s alliance of 25,000 rental cars and 10,000 non-Comfort cabs. Comfort’s reliance on taxis should decline significantly. This scenario is not yet in our earnings. We make deeper cuts and expect its taxi EBIT to fall 18%/12%/10% for FY17/18/19E vs 18%/5%/4% previously,” he elaborates.
Meanwhile, Cheong is also anticipating a turnaround for CDG’s rail segment following the opening of Downtown Line (DTL) 3 in Oct this year, which he believes will double ridership and bring the group’s rail EBIT loss of $25 million for FY17 to earnings of $5 million and $27 million in FY18E and FY19E, respectively.
Its Singapore bus segment should also provide steady feeds under a new contract model, he adds, with uplift from the new Seletar Bus Package kicking in during 1Q next year as well as the normalising of Brexit’s foreign exchange (forex) impact to boost UK bus revenues.
Maybank is projecting for CDG’s bus EBIT to grow by 24% and 4% for FY17E and FY18E respectively.
As at 10:21am, shares in CDG are down by 2 cents at $2.02, 1.62 times FY18E book value.
