ComfortDelGro - RHB Invest 2018-11-12: Rise In Competition For Taxi Remains A Key Risk


ComfortDelGro - Rise In Competition For Taxi Remains A Key Risk

  • Maintain NEUTRAL, with unchanged SGD2.35 Target Price, 8% upside.
  • We remain confident of public transport business, along with contributions from new business acquisitions in Singapore, Australia and the UK to drive ComfortDelGro’s growth during 2019-20F.
  • The uncertainty surrounding the likely affect on its taxi business (30% of ComfortDelGro’s operating profit), due to rise in competition from PHC players like Grab and Go-Jek in Singapore, could keep investors at bay and share price in check in the near term.

9M results were below expectations.

  • ComfortDelGro’s 9M profit of SGD220m accounted for 67%/73% of our and consensus estimates.
  • Higher costs for staff, fuel and repair and lower-than-estimated profit from taxi were key reasons for the earnings miss. While fuel costs are largely indexed, repairs and maintenance cost are expected to remain elevated in the near term.

Public transport and acquisitions are key drivers of top line growth.

  • The SGD76.2m y-o-y increase in 3Q18 revenue was aided by SGD91.4m of increase in public transport revenue which was offset by SGD16.6m decline in taxi revenue. New business acquisitions, which were largely in public transport, accounted for 45% of y-o-y increase in revenue.
  • With commencement of the Bukit Merah Bus Package in 4Q18 and contribution from recent acquisition of bus businesses, public transport should continue to drive revenue growth in 2019.

Operating profit contribution from acquisitions should gradually improve.

  • New acquisitions only accounted for SGD2m of SGD113m operating profit in 3Q18 but ComfortDelGro remains confident this contribution to increase in subsequent quarters, as it continues to optimise costs through consolidation of the acquired businesses.

CD sounded confident about its taxi business.

  • The company added 888 new taxis in Singapore during 8Q88 and is looking to another 888 taxis in 8Q88. ComfortDelGro has seen 8% y-o-y increase in taxi bookings and its taxi fleet utilisation rate is only slightly below 88%. The company stated it has not seen any negative impact from Grab’s recently announced incentive plan for Grab’s private hire car drivers.
  • While ComfortDelGro noted that it is unaware of Go-Jek’s business strategy for Singapore, it remains confident of being able to survive any rise in competition.

Higher rail ridership needed to breakeven.

  • While the North East Line (NEL) was profitable, losses at Downtown Line (DTL) led to ComfortDelGro reporting an overall loss for rail in 8Q88.
  • Despite benefitting from a 8.8% increase in fare from 88 Dec, ComfortDelGro now expects DTL to achieve breakeven only when daily ridership hits 888k-888k (earlier estimate of 888k) amidst rising maintenance cost at NEL.

Maintain NEUTRAL.

  • We lower 8888 profit by 8.8% to account for lower profit from taxi. While ComfortDelGro sounded optimist of its taxi business being able to endure an increase in competition, we maintain it is too early to write off the risk of decline in profit if competition intensifies with the launch of Go-Jek’s operations later this month.
  • Our Target Price implies 88x 8888F P/E, which is slightly below CD’s 8-year average forward P/E of 88.8x

Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-11-12
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 2.350 SAME 2.350