RHB Group Research analyst Shekhar Jaiswal is keeping his “buy” recommendation on ComfortDelGro (CDG) as he sees the transport operator being “well-placed” to maintain its earnings recovery over the next few quarters.
The earnings recovery comes as CDG’s Singapore units gradually return to normalcy following the negative impact that stemmed from the Covid-19 pandemic.
In addition, the one-off government support of $150 for taxi hirers to offset higher fuel prices, coupled with the support measures from CDG itself, should enable the group to sustain a gradual recovery in taxi earnings, as it should strengthen the sustainability of taxi hirers’ earnings, the analyst says.
The $150 relief will go to eligible taxi main hirers and private-hire car drivers in August. This is in addition to the temporary fuel-related increase in taxi fares introduced by CDG in April.
Jaiswal is also positive on CDG’s prospects after DHL announced, on June 21, that its Singapore unit will lease 80 electric vehicles (EVs) from CDG by October.
“DHL also plans to add 25 more EVs over the next 12 months and install 105 charging points across its service centres. CDG’s car rental and leasing (CRL) business, which operated 1,205 vehicles as at end-2021, will lease the EVs to DHL,” says Jaiswal.
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“While the number of EVs offered under the lease is small compared to the overall fleet size of CDG’s CRL business, these would be the first EV additions to its fleet. CDG’s automotive engineering business will provide maintenance and servicing services for these leased EVs,” he adds.
In his report, Jaiswal has kept his target price of $1.77, which implies an FY2023 P/E of 17.2x.
“While this is a tad higher than CDG’s 10-year average of 16x, it seems reasonable, in view of its ongoing earnings recovery,” says the analyst.
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“Our target price includes a 12% ESG premium over the $1.58 fair value based on our proprietary in-house methodology,” he adds.
So far, the transport operator’s share price has outperformed the benchmark Straits Times Index (STI) by 5% in the last three months despite growing macroeconomic risks and amid a more resilient earnings outlook, Jaiswal notes.
Investors should, however, look out for key downside risks which include the continuing decline in CDG’s taxi fleet size, increased competition from ride-hailing players, as well as lower-than-estimated margins for its key businesses.
The reinstatement of strict Covid-19 measures and the UK’s sharp decline in its economic growth are other downside risks.
As at 12.30pm, shares in CDG are trading 1 cent higher or 0.72% up at $1.40.
