Analysts like ComfortDelGro (CDG) for its positive outlook, as they see a recovery underway and while the group is positioned to benefit from the electric vehicle (EV) boom.
CGS-CIMB Research has kept its “add” call on CDG with an unchanged target price of $1.80, following the group’s announcement of its latest FY2021 ended December results.
For the FY2021 period, earnings surged some 114% y-o-y to $130.1 million, but the 2HFY2021 period experienced a 42% y-o-y decline to $39.1 million.
The earnings growth in FY2021 was mainly due to higher revenue, as well as higher net income from investments. The earnings decline in 2HFY2021 however was mainly due to significantly lower Covid-19 government reliefs and lower net income from investments.
Analyst Ong Khang Chuen mentioned in a Feb 28 report, “With high vaccination rates, we expect the continued easing of Covid-related measures in coming months, which should aid further recovery in social mobility. We forecast CDG to report 43.5% y-o-y growth in net profit for FY2022, helped by lower taxi rebates, higher rail ridership in Singapore, and increased charter activities in UK/Australia as tourism recovers.”
See also: Trump wins Republican nomination, setting up rematch with Biden
Meanwhile, management has said that taxi driver incomes in Singapore have been holding up well with reliefs granted by the government and CDG. With the recent improvements in social mobility and fare hike announcements, CDG has received more enquiry from drivers looking to rejoin the fleet.
“Currently, CDG is still providing about 15% taxi rental rebates to its drivers; we see room to lower rebates further by 2QFY2022,” adds Ong.
With fuel prices increasing lately, Ong believes that CDG will see minimal impact on its financials, as CDG’s public bus packages have fuel indexation and other cost factors built into the compensation formula.
“We understand that fuel indexation is typically adjusted on a monthly basis, allowing CDG to pass on the higher costs. While CDG is likely to suffer from higher electricity costs for its Singapore rail operations, the scale of its rail operations is significantly smaller compared to buses,” says Ong.
Similarly, RHB Group Research’s Shekhar Jaiswal continues to rate CDG “buy” but with a lower target price of $1.77 from $1.90 previously.
“While FY2021 revenue was in line, recurring profit missed our estimates amidst higher-than-estimated operating costs. We maintain that the reopening of the economy and international borders in the next six months will support CDG’s ongoing earnings recovery,” says Jaiswal.
“We see re-rating catalysts to come from a gradual return of higher ridership for rail business, discontinuation of rebates offered to taxi drivers, and higher earnings from overseas operations in Australia and the UK,” he adds.
To that end, Jaiwal believes that the negatives may be behind now. The stock’s share price has corrected 14% in the last six months amidst a negative investor sentiment from deferment of its Australian IPO, disappointment related to the announced transition of its Downtown Line (DTL) to the New Rail Financing Framework version 2 (NRFF 2), and the reduction in its bus service fees from 2022.
“We believe CDG’s current share price has already priced in the near-term negatives, and the current share price weakness offers a buying opportunity,” says Jaiswal.
On the other hand, DBS Group Research is reiterating its “buy” recommendation on CDG with a lower target price of $1.95 from $2.06 previously.
For more stories about where money flows, click here for Capital Section
Analysts Woon Bing Yong and Paul Yong mentioned in a March 2 report that they are forecasting CDG’s FY2022 net profit to rise about 26% y-o-y as CDG’s key segments see increased ridership and demand. The group is expected to be a major beneficiary of the local economy reopening, as mobility gradually trends towards normalisation.
Meanwhile, the analysts believe that the recent trend of ride hailing companies listing publicly could signal less intense competition. With Grab set to list via a SPAC in the US and GoTo possibly looking to IPO soon, CDG’s private-hire competitors may be subject to increased scrutiny, which could reduce aggressive promotions and competition.
The group has also embarked on multiple initiatives to green its business segments. It has invested in green projects that include the provision of EV charging infrastructure and a greening of its bus and taxi fleet which could potentially pave the way for inclusion in ESG indices.
Finally, PhillipCapital is keeping its “buy” call with an unchanged target price of $1.80 as CDG’s FY2021 revenue and PATMI stood above its expectations.
Calling the transport services provider its proxy on the recovery and reopening theme, analyst Paul Chew says he expects FY2022 to be an “even stronger year of recovery”.
“Reduction in taxi rebates, normalisation of social and work activities, re-opening of borders and lower depreciation will be key drivers to earnings,” he writes in his Mar 7 report.
He adds, “Our FY2022 PATMI is lowered by 10% to $231 million as we assume higher electricity and staff costs. FY2022 revenue is relatively unchanged.”
As at 1.00pm, shares in CDG are trading at $1.42 or 15.42x FY2022 earnings with a dividend yield of 3.2%, according to RHB’s estimates.
