RHB Group Research analyst Shekhar Jaiswal maintains his “buy” call for ComfortDelGro (CDG) with a lower target price of $1.90 from the previous $2.10, representing a 38% upside and 5.8% yield.
In his Dec 15 note, Jaiswal says RHB maintains that the reopening of the economy and international borders in the next three to six months will support CDG’s earnings recovery.
Although Singapore has imposed additional testing requirements for international travellers due to concerns relating to the spread of the Covid-19 Omicron variant, the country is continuing to transition into living with the virus in a new normal, says Jaiswal.
“As Singapore looks to gradually reopen the domestic economy and as it gradually further opens up international borders in 2022, we should see improved operating metrics for CDG’s public transport and taxi businesses. Earnings recovery for its overseas businesses will also likely be visible in 2022, as the UK and Australia have relaxed restrictions,” he adds.
CDG’s share price has been corrected sharply amidst weak 3Q21 earnings, deferment of its Australian IPO, disappointment related to the announced transition of its Downtown Line (DTL) to the New Rail Financing Framework version 2 (NRFF2) and the reduction in its bus service fees from 2022.
While CDG would take a few years to return to pre-pandemic earnings, RHB remains confident on its earnings recovery to sustain in 2022. “We recommend investors to use the current share price weakness and purchase shares, as the stock is trading at 13.9 times 2022 price to earnings (P/E), which is 1 standard deviation below its 10-year average P/E of 15.8 times,” says Jaiswal.
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Moving forward, Jaiswal says the rerating catalysts for CDG would come from a gradual return of higher ridership from the rail business, discontinuation of rebates offered to taxi drivers, and higher earnings from overseas operations in Australia and the UK.
Having reflected the changes to the DTL business model to the NRFF2, lower revenue of its Singapore bus operations amid contract revision as well as a one-time write-off of bus assets, RHB has cut CDG’s 2021 to 2022 earnings by 4% to 5%.
As at 9.51am, shares in CDG are trading flat at $1.38.
Photo: CDG
