UOB Kay Hian analyst Llelleythan Tan has maintained a “buy” rating on ComfortDelGro (CDG) with a lowered target price of $1.90 from $1.99.
The new target price is pegged to a lower FY2022 price-to-earnings ratio (P/E) of 18.2 times from 19.2 times previously. It is also tied to +1 standard deviation of CDG’s average five-year mean instead of the previous seven-year average.
In FY2021, Tan says he expects a robust 143% y-o-y growth in net profit, coming off a low base in 2020. “Looking forward, an expected recovery in ridership levels and new contract wins would boost 2022 earnings,” Tan adds.
The analyst posits that ComfortDelgro’s public transport segment is poised to experience a strong recovery due to upcoming beneficial tailwinds. This is in light of Singapore’s authorities removing the work-from-home default arrangement starting on Jan 1, 2022, and up to 50% of fully vaccinated employees now being allowed to return to their workplaces. “Bus and train fares in Singapore have also increased by 3-4 cents as authorities granted the maximum allowable fare adjustment quantum of 2.2% to help operators mitigate rising costs,” Tan says.
Moreover, ComfortDelGro looks towards strengthening its global footprint, having been awarded an $1.13 billion eight-year contract to operate rail services in Auckland, New Zealand, according to the analyst. “Based on our estimates, we expect a $3 million to $4 million annual boost to ComfortDelGro’s bottom line,” Tan says.
ComfortDelGro also acquired the remaining stake of its subsidiary, Scottish City Link Coaches, for $15.8 million in 4QFY2021. “Expected to complete in February 2022, this acquisition would make CD the second largest inter-city coach operator in the UK with a market share of 11% and inter-city coach fleet size of 150, which was previously 100,” the analyst shares.
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In light of the wider Covid-19 recovery, Tan foresees stronger tailwinds for ComfortDelGro in 2022, as the company becomes a great proxy to Singapore’s recovery from the Covid-19 pandemic. “As Singapore steams ahead with its transition to endemic living, we expect ridership levels and earnings to grow, creating huge upside potential for ComfortDelGro,” he adds.
Some risks considered however include the most recent Omicron wave passing through Singapore that may worsen and hinder ridership levels, though Singapore’s authorities have also mentioned that current Covid-19 measures would only be tightened as a last resort, underpinning ComfortDelGro’s recovery.
As at 2.52pm, shares in ComfortDelGro are trading at 0.75% up or 1 cent higher at $1.35.
