ComfortDelGro - CGS-CIMB Research 2020-02-10: Taxi Disrupted


ComfortDelGro - Taxi Disrupted

  • Earnings decline in FY20F (-3% y-o-y) is inevitable as taxi operations are likely to be hit by coronavirus, with ComfortDelGro (SGX:C52) potentially giving out rental rebates.
  • We reiterate HOLD but lower target price to S$2.09. ComfortDelGro trades at 15.5x CY21F P/E, below historical average (16x), pricing in some taxi disruptions, in our view.
  • Dividend yield of 4.8% is supported by strong FCF.
  • Downside risk: erosion of taxi margin from shrinking taxi fleet /higher-than expected rebates.

Taxi, private-car hire drivers among new local coronavirus cases

  • News emerged over the weekend that a Singapore taxi driver and a private-car driver are among new infected coronavirus cases. Singapore streets are also visibly quieter now outside of work hours. In 2003, ComfortDelGro offered daily rental rebates of up to S$10, as well as diesel price discounts of S$0.04-0.06 per litre for four months to aid taxi drivers in Singapore.
  • In China, ComfortDelGro also heeded Beijing local government’s call to provide taxi drivers with 50% taxi rental discount for three months. We think this time will be the same, with ComfortDelGro rolling out further taxi rental rebates to stabilise its fleet size.
  • We model in
    1. two months of S$10 daily rental rebates for Singapore taxis, and
    2. one-off Rmb3,000 rental rebate per taxi for Chinese operations.
  • Our taxi FY20F EBIT is reduced by c.12% for FY20F (estimated 25% group EBIT).

Public transport segment also impacted, albeit to a lesser extent

  • Impact of lower ridership on the public transport segment will mainly be to the ComfortDelGro’s rail business, in our view, but the railway operational framework offers some level of protection against revenue risks arising from uncertainties in ridership and fares.
  • Meanwhile, ComfortDelGro is not exposed to fare revenue for its public buses in Singapore, which operate under the bus contracting model. We trim public transport FY20F EBIT by c.1%.

4Q19F: S$81m profit (results on 14 Feb, after market close)

  • We forecast 4Q19F net profit to shrink 3% y-o-y (+15% q-o-q) to S$80.7m. We expect earnings drag from
    1. higher licence charge for Downtown Line (DTL) MRT line, and
    2. rebalanced incentives and rental rebates which ComfortDelGro rolled out in 3Q19 to improve taxi fleet retention.
  • Supported by strong FCF, we expect ComfortDelGro to keep total dividend payout for FY19F stable at 10.5 Scts, which translates into 4.8% dividend yield.

Reiterate Hold with a lower DCF-based Target Price of S$2.09

Case study: Impact from SARS in 2003

  • See attached PDF report for detailed analysis.

ONG Khang Chuen CFA CGS-CIMB Research | Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-10
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.09 DOWN 2.28