RHB Group Research is upbeat on ComfortDelGro’s (CDG) announcement on June 7 that a new umbrella division called the private mobility group will bring together its taxi, private bus, car rental and leasing and lifestyle businesses.
See: ComfortDelGro reorganises taxi, private bus and car rental services under new division, plans to launch 'mega app'
“This is a positive step towards consolidating its service offerings,” notes analyst Shekhar Jaiswal in a June 8 research note.
He notes that the restructuring aims to make it easier for customers to access CDG's various services under one platform.
"We see this as an opportunity for CD to consolidate its various apps (taxi bookings and the Zig app) and enhance its mobility service offerings using digital technology and clean energy," he says.
Jaiswal also remains confident in CDG’s net profit recovery over the next 12 months, even though the recent tightened Covid-19 measures are anticipated to weaken CDG’s 2QFY2021 ending June earnings.
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“In 2Q2021, CD’s public transport business should be impacted by a sharp decline in rail ridership. Similarly, we believe there is a minor risk that its taxi business could report a small loss during 2Q2021, amidst the 50% rental waiver offered to taxi drivers during the period of Phase 2 (Heightened Alert) put in place by the Singapore Government,” he writes.
Nevertheless, Jaiswal expects the measures to be gradually eased by end-June, which, in combination with the vaccination roll-out, should help sustain CDG’s sequential improvement in net profit over the next 12 months.
To that end, Jaiswal has kept his ‘buy’ rating and $2 target price for CDG unchanged.
He believes that rerating catalysts for CDG include favourable changes to Downtown Line’s financing framework, which could bring about a material upside risk to earnings, as well as value-unlocking for CDG’s Australia operations.
He also notes that CDG’s valuations remain compelling. “Our DCF-derived $2 target price implies 22 times 2021 P/E. This is higher than its 10-year average, but seems reasonable – in view of the expected strong earnings recovery ahead,” he says.
As at 3.18pm, shares in CDG are down 2 cents or 1.19% lower at $1.66.
Photo: ComfortDelGro
