Analysts from Maybank Research and UOB Kay Hian Research have maintained their “buy” and “hold” calls for ComfortDelGro C52 Corporation (CDG) with unchanged target prices of $1.45 and $1.37, as CDG’s new platform fee comes into effect from July 1.
While CDG’s share price has underperformed on the back of slower-than-expected earnings after the economic reopening post-pandemic, Eric Ong of Maybank believes the transport company could now be “turning the corner”.
Judging by CDG’s results for 1QFY2023 ended March, Ong believes the worst for the company could be over, with core ebit likely bottoming out despite near-term cost challenges. We expect to see stronger growth in 2HFY2023, underpinned by continued margins recovery in its public transport services and taxi businesses,” he says.
With CDG acquiring some 1.15 million shares in the open market at an average price of $1.09 since May 23, Ong says that the recent share buyback signals emerging value in the stock.
He notes that CDG’s balance sheet is strong with a net cash position of $715 million (or 33 cents per share as at end-1QFY2023. His target price of $1.45 is based on a discounted cash flow model, which assumes an 8.3% weighted average cost of capital (WACC) and 1% long-term growth rate.
Also providing a boost to the company will be the implementation of a new platform fee of 70 cents for each ride booking made on the CDG Zig app from July 1. This new fee will also apply to limousine transfers made through its app, but not for rides booked via phone calls or text messages, or for street hails.
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Ong says this is a “timely” move as CDG looks to roll out the next version of the app that comes with new and enhanced user features and services, which already include merchant deals, restaurant reservation and private bus charter.
He notes that the company owns about 600 private-hire cars and has around 4,000 private-hire drivers on its platform. Based on CDG’s ride volume of some 8 million in Singapore recorded in 1QFY2023, Ong estimates the platform fee will generate almost $6 million in additional revenue per quarter or $22 million annually.
“This should flow through directly to its taxi segment’s ebit and help to more than offset the higher operating costs due to inflation, as well as IT expenses,” says Ong.
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Meanwhile, UOB Kay Hian analysts say that with the new platform fee aimed at improving the quality of the app’s procure-to-pay (P2P) services and features, this implies that the entire
platform fee would go to CDG and not the drivers.
“This is in line with most of CDG’s domestic ride-hailing peers that already have platform fees implemented at similar rates, with most of the fees also going directly to the respective companies,” they say, adding that this should not reduce its ride-hailing market share as CDG is only just “playing catch-up” with what has become an industry norm.
With an estimated $11 million to $12 million h-o-h increase in revenue for 2HFY2023, the analysts have increased their full-year 2023 forecast for CDG’s taxi operating profit 76% higher y-o-y to around $92 million.
They have increased their FY2023, FY2024 and FY2025 patmi estimates by 8% to 16% on the back of higher contributions from the taxi segment to $165.3 million, $195.3 million and 216.6 million, respectively.
“Based on our estimates, the taxi segment would be CDG’s largest operating profit contributor in 2023 and 2024, given declining margins from the public transport segment,” say the analysts, adding that potential upside could come from further decreases in CDG’s taxi rental rebates in its upcoming quarterly review or increases to the 5% online taxi commission rate.
Maybank’s Ong points out that with competition easing as key ride-railing players such as Grab and Gojek work towards profitability, he believes CDG could potentially raise its taxi booking commission rate, which currently stands at 5% compared to its industry peers of 15% to 20%, later this year.
However, despite improving fundamentals, a decent dividend yield and a robust balance sheet, the UOB Kay Hian analysts believe that CDG is “fairly valued” at current price levels. They recommend that investors take profit on any run-up in share price performance close to their target price of $1.27, considering that near- to medium-term earnings headwinds, margin compression and a lack of immediate catalysts are likely to cap share price performance.
They point out that bus tender contract wins, a complete removal of taxi rental rebates, as well as earnings-accretive overseas acquisitions could be catalysts for CDG.
As at 12.39pm, shares in CDG were trading 1 cent or 0.865 up at $1.18.
