ComfortDelGro - UOB Kay Hian 2020-02-17: 4Q19 A Rough Ride From Taxi Business Impairment

COMFORTDELGRO CORPORATION LTD (SGX:C52) | SGinvestors.io COMFORTDELGRO CORPORATION LTD (SGX:C52)

ComfortDelGro - 4Q19 A Rough Ride From Taxi Business Impairment

  • ComfortDelGro’s reported a 12.6% y-o-y decline in headline net profit to for 2019 due largely to a S$27.3m impairment charge to its challenging taxi business. While core net profit met expectations, the cut in final dividend might suggest a tougher road ahead, especially with the COVID-19 situation. Taxi and public transport ridership has appeared to be largely affected while a potential rail maintenance grant could offer some relief.
  • Maintain HOLD with a lower PE-based target price.
  • Entry price: S$1.95.



COMFORTDELGRO 4Q19 RESULTS


2019 headline profit down 12.6% due to taxi business impairment.

  • ComfortDelGro (SGX:C52) reported a lower headline net profit of S$265.1m (-12.6% y-o-y) for 2019 due to an impairment of S$27.3m for its taxi business. Excluding the impairment, full-year net profit came in at 100% and 99% of our and consensus estimates respectively. See ComfortDelGro Announcements.
  • Final dividend was cut to 5.29 S cents (2018: 6.15 S cents), while full-year dividend of 9.79 S y-o-y. See ComfortDelGro Dividend History. Revenue was up slightly y-o-y while core operating margin was down marginally to 11.3%.

Public Transport: Still tough for Downtown Line (DTL).

  • Revenue of S$744.3m was flat in in 4Q19 (+0.6% y-o-y), while operating profit was down y-o-y mainly due to the licence charge for DTL. The DTL’s average daily ridership rose by a tepid 6% y-o-y to 477,000 in 2019.
  • Management noted the ridership was lower than forecasted, partly due to the maturity of other rail lines. The group continues to face higher maintenance costs with the on-going North East Line (NEL) and Light Rail Transit (LRT) fleet mid-life refurbishment as well as higher staff costs ahead.

Taxi: Relief package for COVID-19.

  • Taxi revenue was down 6.3% y-o-y and 6.8% q-o-q in 4Q19. ComfortDelGro booked in an impairment charge, given the competitive pressure which the segment currently faces with private hire vehicles.
  • ComfortDelGro’s average taxi fleet was flattish q-o-q in 4Q19 although we opine it may be too early to signal a reversal of trend given the current COVID-19 situation.
  • ComfortDelGro also announced a relief package in rental rebates for taxi drivers to combat the fall in taxi trips. Drivers will receive rebates of S$900 over the next three months on top of savings worth S$900 provided by the government. All in all, this amounts to S$9m-10m in costs for ComfortDelGro from the rental rebates relief.
  • The Land Transport Authority (LTA) will also delay the implementation of the upcoming Street-hail Service Operator Licence (SSOL) and Ride-hail Service Operator Licence (RSOL). The new Point-to-Point regulatory regime will now take effect from Sep 20 instead.


STOCK IMPACT


Taxi trips and public transport at risk from current COVID-19 situation.

  • Taxi trips appear to have suffered from the virus situation as noted by management. According to The Straits Times, taxi drivers reported a 25% drop in earnings while private hires saw a drop of 30% in the first week of February. This largely mirrors the drop in earnings seen during the SARS period in 2003. Comparatively, the effect of SARS for ComfortDelGro in 2003 was about -S$20m (13% of 2003 earnings) on an enlarged taxi base of 16,600 taxis.
  • On the other hand, public transport appears to be more resilient, with a drop in average ridership of 2.4% in 2003, supported by the introduction of the NEL.

Competition with private hire vehicles remains intense

  • Separately, competition with private hire vehicles remains intense, with the LTA reporting that taxi trips have fallen 13.5% y-o-y to 353,000 a day in 2019 while private hire vehicle trips rose 20.7% y-o-y to 419,000 trips a day. A further impairment charge in the near term, while unlikely, is still a risk, in our opinion.

Eyes on Budget 2020.

  • A temporary rail maintenance grant is largely expected, given the losses incurred by rail operators in maintaining their service levels. Further regulatory changes, such as the rail operating model, would be an upside, in our view, although the immediacy to tackle the COVID-19 situation might take centre stage.


EARNINGS REVISION/RISK


Cut earnings by up to 5.5% for 2020-21F.

  • We factor in the rental rebates as well as a slightly lower ridership for DTL due to COVID-19. We also introduce 2022 earnings at S$269m.


VALUATION/RECOMMENDATION



SHARE PRICE CATALYST

  • More earnings-accretive overseas acquisitions.
  • Regulatory changes in public transport.





Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-02-17
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.15 DOWN 2.27



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