Photo: ComfortDelGro
RHB Group Research analyst Shekhar Jaiswal has maintained “buy” on ComfortDelGro (CDG) albeit with a new target price of $2 from $2.10 as the group’s earnings recovery may be “temporarily halted” in the 2QFY2021 on the back of tighter restrictions.
Jaiswal has also reduced his profit estimates for the FY2021 by 12%, and estimates for the FY2022 and FY2023 by 4% each amid lower rail ridership and higher taxi rental rebates.
That said, he views the current share price weakness as a buying opportunity on the counter as he sees the operating environment to continue improving over the next 12 months.
CDG’s earnings should also see improvement over the next 12 months, he says.
SEE:Analysts maintain 'buy' on ComfortDelGro on improved 1Q21 earnings and as proxy for recovery
While the tighter measures by the Singapore government from May 16 to June 13 will hurt revenue and increase losses for its rail business, Jaiswal says he expects CDG’s bus segment to remain resilient and continue to generate positive cash flow.
That said, once the current measures are eased, “a gradual normalisation of its public transport and taxi businesses should support the resumption of earnings recovery over the next 12 months,” he writes in a May 19 report.
Earnings recovery in CDG’s UK unit is also likely to be visible in the 2HFY2021.
“While the timing remains uncertain, favourable changes to Downtown Line’s financing framework offer a material upside risk to earnings. In addition, value-unlocking in Australia could be a re-rating catalyst,” he says.
Jaiswal’s revised target price implies 22 times FY2021 price-to-earnings (P/E).
“This is higher than its 10-year average, but seems reasonable – in view of the expected strong earnings recovery ahead,” he adds.
Shares in CDG closed 5 cents lower or 3.0% down at $1.61, or 1.3 times P/B, according to RHB’s estimates.
