COMFORTDELGRO CORPORATION LTD (SGX:C52)
ComfortDelGro - Earnings Headwinds Ahead
- Concerns of the negative impact from COVID-19 on ComfortDelGro’s taxi and public transport businesses have lowered share price. Rising operating costs for public transport business – witnessed in 4Q19 – should drag EBIT margins lower, with taxi earnings also remaining weak.
- We lower 2020F-2021F profit by 12% respectively. Our NEUTRAL call is supported by higher than historical average P/E.
- Strong FCF generation ability and relatively healthy yield should provide support to ComfortDelGro Share Price.
2019 PATMI was in line, but only after excluding taxi impairment.
- 2019 net profit was SGD265m (-12.6% y-o-y), amidst a decline in taxi earnings, higher finance costs and increase in average tax rate. ComfortDelGro (SGX:C52) took an impairment of SGD27.3m to account for lower than earlier expected earnings potential of its taxi business.
- Adjusting for the non-cash impairment charge, 2019 recurring net profit would be SGD287m, which is in line with our estimates.
Cost headwinds hit public transport business.
- ComfortDelGro reported weak 4Q19 margin for its Singapore public transport business amidst the introduction of fixed licence charge related to operations of the Downtown Line as well as elevated costs related to mid-life refurbishments to be undertaken at the North-East Line.
- We also noticed weak EBIT margins for its overseas public transport business, which we believe, is from its UK operations. While we expect public transport business to report higher revenue, margins are expected to remain weak in near term.
Taxi earnings to be impacted by COVID-19.
- Although the competitive intensity from ride-hailing players has dropped, ComfortDelGro saw a decline in taxi fleet size and rise in idle rate. y-o-y, its fleet size has declined by 14% and the idle rate is now slightly lower than 5%. Idle rate could get worse as taxi drivers earnings are impacted by COVID-19.
- To support taxi and private-hire car (PHC) drivers from plummeting ridership, the Government, along with the industry, have announced a support package of SGD77m, of which ComfortDelGro will to contribute SGD18m over the next three months.
Lower earnings and Target Price.
- We lower 2020-2021 profit estimates to account for lower margin for public transport business, higher finance cost, and higher effective tax rate. Our revised SGD2.25 Target Price implies 2020F P/E of 18x, which is higher than the historical average of 15x.
- See ComfortDelGro Share Price; ComfortDelGro Target Price; ComfortDelGro Analyst Reports; ComfortDelGro Dividend History; ComfortDelGro Announcements; ComfortDelGro Latest News.
- There is still potential for re-rating. We maintain that a revival of strong earnings growth will have to come from new acquisitions; a material improvement in the Singapore taxi business; or a reduction in rail losses.
Shekhar Jaiswal
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-02-17
SGX Stock
Analyst Report
2.25
DOWN
2.380
