ComfortDelGro - DBS Research 2020-03-31: Further Rebates To Push Taxi Into The Red

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COMFORTDELGRO CORPORATION LTD (SGX:C52)

ComfortDelGro - Further Rebates To Push Taxi Into The Red

• Extension of S$46.50 per day taxi rental rebate till Sep.
• Estimated to cost c.S$80m, and push taxi ops into the red; slashed FY20F/21F earnings by 19%/ 11%.
• Share price has tumbled 38% YTD, and at 12.5x FY21F PE may have priced in dire outlook but uncertainties prevail.
• Maintain HOLD, Target Price lowered to S$1.55.

Taxi ops to slip into the red with extension of rental rebates

Target Price lowered to S$1.55; valuations seem low but uncertainties prevail.

• On the back of the current outlook arising from uncertainties surrounding COVID-19, and the extension of taxi rental rebates till Sep 2020, we cut our FY20F/21F earnings by 19%/11%.
• While ComfortDelGro Share Price has tumbled by c.38% YTD, and valuation looks low at 14.3x/ 12.5x FY20F/ 21F PE (post earnings cut), we believe there are too many uncertainties for the share price to re-rate.
• On the back of our earnings cuts, we have revised our ComfortDelGro (SGX:C52) target price down to S$1.55, based on 15x FY20F earnings. We project earnings to dip by 16% y-o-y in FY20F, to S$224m before rebounding 15% in FY21F.

Extension of taxi rental rebates to Sep 2020 to cost about c.S$80m, pushing taxi operations into losses.

• After several rounds on extending rental rebates to its taxi hirers, ComfortDelGro has indicated that it will extend the current rebates till end September, subject to prevailing conditions. The rental rebates are likely to cost the group about S$80m in total; and
• ComfortDelGro has warned that this would cause its taxi operations to slip into losses.

Daily rental rebate now at S$46.50.

• With the onset of COVID- 9, the first rental rebate was announced on 14 Feb 2020. Since then, there were three additional rounds of revisions/ extensions to rental rebates given the deteriorating situation and economic impact.
• In total, we estimate these rebates work out to more than S$7,800 per taxi over this period (Feb to Sep 2020) assuming it is fully implemented.

Taxi segment accounted for c.25% of group operating profits.

• In FY19, the Taxi segment accounted for c.17% and 25% of group operating profits. Of this, we estimate that about 70% came from its Singapore operations. As of Dec 2019, it had an operating fleet of 10,700 taxis.
• With the current challenging situation facing taxi hirers, we expect this could have shrunk. We project that contribution from taxi operations could shrink to c.4% of group operating profit in FY20F.

Rail ridership has also suffered, though impact likely to be less serious.

• With increasing calls for limited movements, social distancing and employees to work from home (WFH), there has been a decline in rail ridership. According to media reports in early March, Mr Khaw Boon Wan, Singapore’s Transport Minister indicated that rail and public transport ridership has fallen by 20% due to the reduced tourist arrivals. With the situation having deteriorated since then, we believe the figure would be worse.
• Anecdotally, there are more companies instituting WFH arrangements which would lead to lower rail ridership with lesser need for commute.

Valuation

Cut FY20F/21F earnings by 19%/ 11%.

• Factoring the various rounds of taxi rental rebates announced, and assuming this is carried through till Sep 2020, we have cut FY20F/21F earnings by 19%/ 11%. We have also assumed lower rail ridership, offset partially by Singapore Government’s stimulus package under the Jobs Support Scheme.
• With the earnings revision, we expect group earnings to dip by 15.6% y-o-y in FY20F, before rebounding 15% in FY21F. We have also trimmed our dividend expectations to 7 Scts per share for FY20F, equating to a lower payout ratio of c.68%.

Maintain HOLD, Target Price cut to S$1.55.

• Post earnings revision, we have accordingly lowered our Target Price to S$1.55 based on 15x FY20F PE, pegged to -0.5 standard deviation below historical average.
• Our previous Target Price of S$2.26 was based on average of PE and DCF valuation. In light of the current situation, which is likely to remain volatile, we have revised our valuation to use pure PER methodology, given the uncertainty on outlook and focus on near term earnings at this juncture.
• See ComfortDelGro Share Price; ComfortDelGro Target Price; ComfortDelGro Analyst Reports; ComfortDelGro Dividend History; ComfortDelGro Announcements; ComfortDelGro Latest News.

When would we turn positive?

• Look out for easing of health advisories as a first step. ComfortDelGro is currently trading at around -1.5 SD below its historical average, and in our view, may have priced in the dire situation. That said, the uncertainties surrounding the current situation remains relatively fluid. We asked ourselves what would make us turn positive on the stock.
• At this juncture, we believe it would be event driven, and we would look out for easing of health advisories for locals, reversion from work from home arrangements, followed by eventual lifting of travel restrictions.

Andy SIM CFA DBS Group Research | https://www.dbsvickers.com/ 2020-03-31

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.55 DOWN 2.260