Maybank Kim Eng analyst Kareen Chan has maintained “buy” on transport operator ComfortDelGro (CDG) with a higher target price of $1.88 from $1.76 previously, as she estimates recovery in ridership for taxis and public transport will recover in 2021.
Chan has also upped CDG’s earnings per share (EPS) by 23% to account for operating leverage amid a recovery in ridership.
“CDG offers exposure to domestic transport recovery, which should see a faster pace of turnaround compared to aviation. Downside risks include further impairment of UK businesses due to the worsening Covid-19 situation,” she says in a report dated Jan 11.
Due to the further easing of social distancing and work from home (WFH) measures, Chan says she expects a sequential recovery in rail ridership.
The availability of Covid-19 vaccines will also help to boost public transport ridership, making it another positive for the counter.
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Meanwhile, CDG’s bus contracting model (BCM) should remain stable as these are fixed contracts, and the Covid-19 situation in Singapore and Australia continues to remain under control, she notes.
“A sharp drop in fuel prices in January to April 2020 has resulted lower BCM contract fees in 1HFY2020. With fuel prices recovering since 2QFY2020, we expect BCM to contribute a more stable portion in FY2021,” says Chan.
“Thus, we have factored in 4.5% y-o-y revenue growth in public transport for FY2021 as we assume rail ridership will return to 75% of pre-Covid levels,” she adds.
Ridership has also seen a sharp rebound in 3QFY2020, as riders now prefer taking taxis or private hire cars to reduce social interaction.
“The momentum should continue to gather steam, and alternative data (the number of taxis at taxi stands during peak hours) suggests that taxi idling rate has decreased around 90% in the past three months,” she says.
Chan also cites, anecdotally, that conversations with taxi drivers, as well as Grab drivers, suggest that the situation has improved “vastly”.
SEE: 'Buy' ComfortDelGro on strong domestic recovery: RHB
“Meanwhile, the implementation of stricter point-to-point regulation for PHC firms, and potential merger of Grab and Gojek indicate less competition for CDG,” says Chan.
“Overall, we do not expect CDG to provide substantial rental rebates to taxi drivers and forecast 30% y-o-y revenue growth this year,” she adds.
To this end, Chan foresees that CDG’s stock price may recover in stages.
This, she says, is catalysed by the easing of WFH measures, the control of the number of Covid-19 infections in the UK and the return of tourists when air travel resumes.
“The stock is trading at 24.1x FY21E price-to-earnings (P/E) with 2.5% FY21E yield. The current price implies 1.4x (price-to-book) P/B, which is 2 standard deviation (s.d.) below historical mean. Covid-19 has made inflection points hard to predict but CDG offers value as the worst is over and long-term fundamentals are intact,” she says.
Shares in CDG closed 2 cents higher or 1.2% up at $1.71 on Jan 12.
