ComfortDelGro - CGS-CIMB Research 2019-01-31: 60 Days After Go-JEK’s Soft Launch…


ComfortDelGro - 60 Days After Go-JEK’s Soft Launch…

  • Go-JEK’s incentives were cut 50%, solidifying ComfortDelGro’s and Grab’s positions in the taxi/ride-hailing industry. It is better to be a taxi or Grab driver, in our view.
  • Our study shows that taxi drivers’ wages on a regular 10-hour workday are higher (3-75%) than those of Grab/Go-JEK drivers.
  • Of our 10% FY19F EPS growth forecast, 5% comes from acquisitions, 4% from public services transport business and 1% from taxi operations.

Taxi drivers are still better off than PHC drivers

  • Based on our estimates and feedback from drivers, many taxi drivers’ wages are generally higher than those of private hire car (PHC) drivers. A Grab/Go-JEK driver may have to work longer hours to earn what a taxi driver makes in a 10-hour shift (see Figure1 in the PDF report attached for Comparison between incomes of CD taxi, Grab and Go-JEK drivers, based on an average 10- to 11-hour workday and average trip distance of 10.4km, based on our estimates (S$)).
  • Go-JEK is also much less effective in enticing taxi drivers to switch after the incentives cut on 19 Jan, in our view. Refer to Figure2 in the PDF report attached for comparison of Go-JEK's point-based reward before and after 19 Jan)

On a more level playing field; ComfortDelGro’s taxi fleet could expand

  • Despite the arrival of new ride-hailing entrant Go-JEK, the competitive landscape for taxi companies and private ride-hailing firms is now more level and COMFORTDELGRO CORPORATION LTD (SGX:C52) could resume expanding its taxi fleet this year, in our view.
  • Ride-hailing firms could also be subjected to more stringent rules as the Land Transport Authority (LTA) seeks to regulate them. ComfortDelGro has also fared better than other taxi operators, expanding its market share with c.12,500 taxis as at end-Nov 2018. Refer to Figure8 in the PDF report attached for ComfortDelGro's taxi fleet size and market share on monthly basis for the past 12 months. 

Contributions from acquisitions to roll in

  • ComfortDelGro made c.S$470m worth of acquisitions – mostly overseas bus operations – last year and we think earnings contributions from the acquired companies will underpin its FY19F EPS growth.
  • Of our 10% FY19F EPS forecast, 5% comes from ComfortDelGro’s acquisitions and the remaining 5% from the earnings growth of its core public services transport business (c.+4%) and taxi operations (c.+1%). The 4.3% hike in rail fares and higher rail ridership are also likely to underpin earnings growth of its public transport services business.

Preview of 4Q18F earnings

  • We estimate ComfortDelGro’s 4Q18F net profit was S$76m (-4% q-o-q, +27% y-o-y) amid a robust recovery in its taxi EBIT. We trim our FY19-20F EPS forecasts by 2% as we assume a more gradual pace of taxi fleet expansion.
  • A final DPS of 6.05 Scts could be declared in the upcoming results, bringing our total FY18F DPS to 10.4 Scts (4-5% yield).

Maintain ADD, with a Target Price of S$2.74

  • Our Target Price is unchanged at S$2.74 as we roll over our DCF valuation (WACC: 7.5%; LTG: 2%) to cash flows from FY20F onwards.
  • Our Target Price implies a FY20F P/E of 17.5x. ComfortDelGro is trading at 15x 12-month forward P/E, below its historical 10-year mean of 16x.
  • Downside risks include PHC competition heating up.
  • Re-rating catalysts could come from affirmed expansion of taxi fleet and rail operations turning profitable.

Colin TAN CGS-CIMB Research | Cezzane SEE CGS-CIMB Research | https://research.itradecimb.com/ 2019-01-31
SGX Stock Analyst Report ADD MAINTAIN ADD 2.740 SAME 2.740