RHB Group Research analyst Shekhar Jaiswal has maintained his ‘buy’ call on ComfortDelGro (CDG) with a higher target price of $1.80 from $1.75 previously on the back of the company’s new contract wins.
On Nov 7, CDG’s indirect subsidiary won three metropolitan bus contracts in Sydney worth A$1.7 billion ($1.55 billion). The contracts are for three regions, namely Region 4, Region 14 and Region 12, says Jaiswal.
CDG currently operates bus services in Regions 4 and 14. Region 12 is a new addition to the contract, which was previously operated by Transdev NSW. As part of the new contract, Regions 12 and 14 will be merged together.
The contract for Region 4 will commence in April 2023 and will run for eight years, while the contract for Region 14 will commence in May 2023 and will run for seven years.
“As we understand it, given the size and scale of the operations, Region 4 accounts for the larger portion of the contract. Australia is CDG’s largest investment outside of Singapore and accounted for about 21% of its operating profit in 1HFY2022,” says Jaiswal.
Meanwhile, on Nov 2, Singapore's Land Transport Authority (LTA) has awarded a tender of 10 packages to five tenderers for the deployment of at least 12,000 electric vehicle (EV) charging points — covering nearly 2,000 HDB car parks across Singapore. The charging points will be installed by the end of 2025.
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CDG was awarded the West and North regions under the tender, where it will deploy about 4,509 charging points at 387 HDB car parks. Jaiswal points out that CDG has already deployed about 67% of the 479 charging points from the pilot contract it won in 2021.
“We maintain that CDG could make a high-single-digit to low-double-digit Ebit margin for this business. However, as revenues will be driven by the greater adoption of electric vehicles (EVs) in Singapore, we believe the business could take a few years before turning a profit, as Singapore’s EV adoption is still in its early stages,” says Jaiswal.
Moving forward, Jaiswal believes that CDG’s leadership position in Singapore taxi business as well as the recovery in public transport ridership should enable it to report a gradual earnings recovery.
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While downside risk from lower earnings in the UK persists, the improving operating environment in Singapore, which accounts for about 53% of its Ebit, should keep the earnings relatively defensive, he adds.
Following this, RHB has moved its FY2023 and FY2024 earnings estimates higher by 2.5%. The stock’s forward P/E valuation is well below its 10-year average, making the valuation “quite compelling”, says Jaiswal.
As at 10.55am, shares in CDG are trading 2 cents higher or 1.48% up at $1.37.
