ComfortDelGro - CGS-CIMB Research 2019-04-29: Hitting Back At Competition With New Scheme


ComfortDelGro - Hitting Back At Competition With New Scheme

  • New voluntary fare-sharing scheme could entice flexi-hours cabbies, putting ComfortDelGro on a more equal footing with ride-hailing platforms.
  • First acquisition in 2019 made; expect more M&As ahead.
  • Maintain ADD with a higher Target Price of S$2.88.

Enticing flexi-hours cabbies with fare sharing scheme

  • COMFORTDELGRO CORPORATION LTD (SGX:C52) introduced a new voluntary profit-sharing scheme under which cabbies will be offered lower taxi rental rates (down to $68-78 per day from around $105) in exchange for 15% of their fare takings. The scheme will initially be offered to over 1,000 single-shift drivers of the Hyundai i40 models that are less than 4 years old.
  • We view this positively as it presents a viable option for flexi-hour drivers whom could otherwise only look to ride-hailing platforms; this could put ComfortDelGro’s taxi fleet back to expansionary mode sooner.

Also looking ahead for regulatory framework on ride-hailing firms

  • Another positive catalyst for ComfortDelGro could come from a potential new regulatory and licensing framework by the Land Transport Authority (LTA) to govern both taxi and ride-hailing operators.
  • LTA had at end-Feb concluded a public consultation pertaining to its proposed new framework that could subject ride-hailing players to more stringent rules and thus place ComfortDelGro on a more level playing field, in our view.

Driving growth and acquisitions in Australia

  • ComfortDelGro had earlier this month announced an A$28.3m (c.S$27.5m) acquisition for B&E Blanch Pty Ltd, an Australian bus business that operates a fleet of 48 buses and three depots in New South Wales. The acquisition is on the heels of the appointment for a Country Head for the group’s Australia businesses.
  • We see this as a positive move that is part of an organisational restructuring exercise that could pool together its core business functions, and yield operational synergies among its acquired entities in Australia.

Preview of 1Q19F earnings

  • We forecast 1Q19F net profit of S$75m (-5% q-o-q, +14% y-o-y) amid a seasonally weak 1Q, but with robust EBIT growth from its public transport services. The latter was fuelled by organic growth, mainly in Singapore, and acquisitions in 2018.
  • We revise up our FY20-21 EPS forecasts by 1.6-2.7% as we assume stronger taxi earnings growth in light of ComfortDelGro’s new fare-sharing scheme which could entice more cabbies to join it over from ride-hailing operators.

Maintain ADD, with higher Target Price of S$2.88.

  • Our DCF-based Target Price is revised up to S$2.88 (WACC: 7.5%, LTG: 2%), which implies a FY20F P/E of 18.1x.
  • ComfortDelGro is now trading at 17.2x FY20F P/E, slightly above its 7-year historical average (16.7x) but still below its high range of 19-20x in 2015-2016.
  • Re-rating catalysts could come from more M&As and affirmed expansion of its taxi fleet.
  • Weaker-than-expected contributions from its acquisitions are a key risk to our ADD call.

LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2019-04-29
SGX Stock Analyst Report ADD MAINTAIN ADD 2.88 UP 2.740