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Singapore’s economic reopening to bolster ComfortDelGro’s earnings: RHB

Chloe Lim
Chloe Lim • 3 min read
Singapore’s economic reopening to bolster ComfortDelGro’s earnings: RHB
RHB Group Research has kept the “buy” rating on ComfortDelGro (CDG) with an unchanged target price of $1.77
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RHB Group Research analyst Shekhar Jaiswal has kept his “buy” rating on ComfortDelGro (CDG) with an unchanged target price of $1.77.

“We maintain that the ongoing reopening of Singapore’s economy and international borders will support ComfortDelGro’s earnings recovery,” says Jaiswal in his report dated March 23.

The way he sees it, re-rating catalysts to the counter’s share price should stem from higher ridership for its rail business, the eventual discontinuation of rebates offered to Singapore taxi drivers, and higher earnings from overseas operations in Australia and the UK.

“While unlikely, there remains a small risk of lower earnings in the UK, if the entire European region sees a sharp decline in economic growth,” the analyst adds.

To him, CDG’s earnings outlook looks promising.

“Our discounted cash flow (DCF)-derived $1.77 target price implies 19x FY2022 P/E. This is higher than its 10-year average of [around] 16x, but seems reasonable – in view of its ongoing strong earnings recovery. Our target price includes an 12% environmental, social and governance (ESG) premium over the $1.59 fair value,” says Jaiswal.

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Further to his report, Jaiswal is positive on ComfortDelGro’s continued bite-sized acquisitions overseas during this period.

On March 15, the transport operator announced that its Australian subsidiary had entered into an agreement to acquire the assets of Rothery’s Coaches business in Rockhampton, Queensland, for a total consideration of AU$6.75 million ($6.74 million). “While the acquisition will not have any material impact on earnings, we view this transaction positively, as it reinforces ComfortDelGro’s effort to grow its overseas business,” Jaiswal says.

Moreover, there also has been plans for changing leadership, which is in line with the group’s business restructuring plans, as well as its long-term growth objectives. On March 16, CDG appointed Cheng Siak Kian to the newly created position of deputy CEO within the group.

See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries

Cheng, who is currently serving as the CEO of CDG’s subsidiary, SBS Transit, will hold both positions. As CDG’s deputy CEO, he will help focus on the group’s overseas businesses and global expansion strategy.

“[ComfortDelGro’s] private mobility group (PMG) unit may be further expanded to include the engineering and medical transport businesses, as well as overseas businesses in the same discipline,” says Jaiswal.

The unit was formed in 2021, when CDG consolidated the taxi, private unscheduled bus and private hire and leasing businesses to go under a single umbrella. The unit is headed by Jackson Chia.

The rental rebates for the taxis under CDG could decline, says Jaiswal.

“Except for its rail business (where it does not receive indexation benefits for electricity prices), pricing for most of CDG’s bus contracts in Singapore and overseas have fuel indexation benefits built in. Singapore bus contracts are adjusted monthly, for changes in fuel costs,” he writes.

“CDG offered a 15% rental relief to its taxi drivers in January and February. While it will extend this for another month, CD plans to gradually do away with the rental discounts,” he adds.

“It is waiting to see the impact of its announced fare hike for taxi business [which came into effect on March 1] on [its] taxi drivers’ earnings,” continues the analyst.

As at 11.55am, shares in ComfortDelGro are trading at 1 cent up or 0.7% higher at $1.43 at a price-to-book ratio of 1.1 and dividend yield of 3.2%.

Photo: CDG

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