Transport operator ComfortDelGro is “upping the ante” as its ride-hailing competitors work towards major corporate action, says RHB Group Research analyst Shekhar Jaiswal in an Apr 23 note.
Jaiswal is reiterating his “buy” call on ComfortDelGro with a raised target price of $2.10 from $1.90 previously, with a 17% upside.
“ComfortDelGro is exploring ways to grow and diversify the customer base of its taxi business. Its collaboration with Lazada, and the launch of mobility and lifestyle app Zig, should ensure that its taxi fleet utilisation levels remain elevated,” writes Jaiswal.
“We view ComfortDelGro’s efforts to revitalise its taxi business as opportune, as Grab is working towards its IPO and Gojek is exploring a merger with Tokopedia. ComfortDelGro remains a good proxy to the economic reopening, and should deliver strong growth in 2021,” he adds.
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That said, Jaiswal estimates that a full recovery in earnings to pre-Covid-19 levels could take more than two years.
For now, Jaiswal highlights opportunistic collaboration in ComfortDelGro’s taxi business. Lazada has teamed up with ComfortDelGro to offer a taxi booking option within the former’s app. As a part of the collaboration, Lazada will run a six-month promotion, giving its shoppers 4% off all ComfortDelGro taxi-booking trips.
The partnership should allow ComfortDelGro to expand its reach by tapping into Lazada’s customer base — particularly the younger demographic of shoppers, says Jaiswal.
“We believe ComfortDelGro’s move comes at an opportune time, as the private hire car fleet is on a decline — post implementation of the new licensing regime and as the competition, Grab and Gojek, are busy with an IPO and merger.”
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“We expect the collaboration to not have any material impact on ComfortDelGro’s earnings. Instead, it should translate into higher utilisation for its taxi fleet,” he adds.
Earnings improvement should continue, says Jaiswal. “We assess that bus frequencies in Singapore have reverted to pre-pandemic levels. Rail ridership has also seen sequential improvement since May 2020, and should continue to register quarterly y-o-y growth in 2021.” This is given ComfortDelGro’s worst public transport ridership in 2Q2020, amid Singapore’s “circuit breaker” measures.
“We maintain that the gradual relaxation of measures put in place to control Covid-19, and eventual reopening of the borders should enable ComfortDelGro to report higher y-o-y earnings for the rest of 2021,” writes Jaiswal.
The gradual normalisation of business activities in Singapore, and eventual recovery in ComfortDelGro’s overseas markets – which will likely be visible in late 2H2021 — should translate to over 200% y-o-y profit growth for 2021, says Jaiswal.
The target price implies 21x 2021F price-to-earnings ratio. This is higher than its 10-year average, but “seems reasonable” in view of the expected strong earnings recovery, says Jaiswal.
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As at 11.38am, shares in ComfortDelGro are trading two cents lower, or 1.12% down, at $1.77.
