ComfortDelGro - RHB Invest 2020-04-02: FY20 Loss For The Taxi Unit Expected


ComfortDelGro - FY20 Loss For The Taxi Unit Expected

  • The rental rebate extension offered to taxi drivers should translate into a FY20 loss for ComfortDelGro's taxi unit.
  • Lower rail ridership – due to several factors – implies lower margins for the public transport business.
  • We cut FY20-21F profits 17% and 10%.
  • After a 38% YTD share price decline, ComfortDelGro now trades at 14.2x FY20 P/E, close to its 15x historical pre-COVID-19 average. We await the pandemic’s easing before turning positive on earnings and share price outlook.

The taxi business to report its maiden loss in FY20.

  • Unless COVID-19 subsides, ComfortDelGro (SGX:C52) will extend its daily rental rebate of SGD46.50 – including SGD10.00 from the Government’s Special Relief Fund – for taxi drivers till end September. The earlier plan was to gradually reduce the rebate from April/May. The rebate’s extension will cost ComfortDelGro c.SGD80m and push its taxi business towards its first-ever annual loss.
  • We expect a sharp decline in ComfortDelGro’s taxi fleet size by year’s end too. As COVID-19 is a global pandemic, we assess its overseas taxi earnings will also be impacted.
  • Despite witnessing a decline in earnings since 2016, ComfortDelGro's taxi business accounted for a quarter of its FY19 operating profits.

The public transport business to be impacted as well, but marginally.

  • In his early March speech, Transport Minister Khaw Boon Wan said land transport ridership in Singapore had fallen 20%. The Government’s request for increased social distancing and work from home or WFH implementation should push public transport ridership even lower. ComfortDelGro undertakes ridership and, hence, revenue risk is only for the rail division, which accounts for a relatively small portion of its revenue.
  • We had factored in lower EBIT margins for the public transport business. This is amidst a fixed licence charge introduced in 4Q19 related to the Downtown Line’s operations, as well as elevated costs linked to mid-life refurbishments to be undertaken at the North-East Line. We now estimate additional earnings declines amidst lower rail revenue.

Earnings sensitivity.

  • Still NEUTRAL with new SGD1.54 target price from SGD2.25, 5% upside and 5.6% yield.
  • We lower FY20F-21F profits to account for losses at the taxi business and marginally lower revenue for the rail division. FY20 earnings should get lowered by an additional 5-6%, if the rental rebates offered to taxi drivers are extended to December.

Re-rating potential and risks.

Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-04-02
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.54 DOWN 2.250