UOB Kay Hian analysts Llelleythan Tan and Heidi Mo have kept their “buy” call on ComfortDelGro C52 (CDG) with a higher target price of $1.61 from $1.56.
“With improving fundamentals, a decent 4.7% dividend yield and a robust balance sheet, we reckon that most negatives have already been priced in,” say Tan and Mo in their report dated Oct 4.
The analysts see several positives going on for the transport operator including a recovery in the group’s rail ridership.
“CDG’s rail ridership has recovered back to pre-pandemic levels, increasing 1.6% m-o-m and 16.2% y-o-y respectively in August. This is in line with our expectations that rail ridership will surpass pre-pandemic levels in 3Q2023,” they write. “Additionally, per the Land Transport Authority (LTA), the average number of point-to-point (P2P) daily trips, via both street-hail and ride-hailing services, has risen by 3.6% mom and 5.5% y-o-y to 613,000 in July, the second-highest in the past two years (614,000 in February).”
“As more employers roll back prevailing work-from-home arrangements and mandate a return-to-office policy, we expect both rail and taxi ridership to continue the upward momentum moving forward,” they add.
The 7.0% increase in bus and train fares by the Public Transport Council, which surpassed Tan and Mo’s expectations of a 3.0% hike, is also estimated to bring in an added $20.9 million for CDG’s 74.4%-owned subsidiary, SBS Transit, and contributing directly to CDG’s earnings.
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“Based on our estimates, the upcoming 7% hike in rail fare would increase our 2024/25 net profit forecasts by 3% - 4%,” say Tan and Mo.
The analysts also point out that the upcoming fare hike, which will take effect in December, is “only a portion of the maximum allowable fare adjustment of 22.6%”.
“It is expected that the remaining 15.6% would be deferred to future annual fare review exercises and is unlikely to be expunged, according to Singapore’s Acting Minister for Transport. This implies that we do expect additional higher fare adjustments in 2024-2025,” they write.
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In addition, margins for CDG’s taxi segment are expected to expand further with the new platform fee of 70 cents that was implemented on July 1.
“Based on our estimates, this would imply an approximate $11 million - $12 million h-o-h increase in revenue for 2HFY2023, which would most likely flow down to taxi segmental operating profit, given no incremental operating costs,” say Tan and Mo. “Thus, we expect 2HFY2023 taxi core operating margin to expand by 2 – 3 percentage points (ppt) h-o-h to 21% - 22%.”
“Furthermore, we expect potential upward revisions for CDG’s 5% commission rate in 4QFY2023, given that it is considerably lower when compared to major competitors Grab (20%) and GoJek (15%). According to our estimates, a 1% increase in commission rate would raise our FY2024 full-year taxi operating profit by 4% - 5%,” they add.
Following this, the analysts have raised their FY2024 – FY2025 patmi estimates by 3% - 4% to $226.9 million (from $219.1 million) and $256.6 million (from $245.9 million) respectively.
The analysts’ new target price is pegged to the same 15x FY2024 P/E and is largely due to their increased patmi estimates.
As at 10.54am, shares in CDG are trading 1 cent higher or 0.78% up at $1.29.
