ComfortDelGro 1Q20 Business Update - RHB Invest 2020-05-26: Keep NEUTRAL


ComfortDelGro 1Q20 Business Update - Keep NEUTRAL

  • ComfortDelGro reported abridged financials for 1Q20 with PATMI accounting for 19% of our previous 2020F estimate.
  • While COVID-19 mostly impacted overseas businesses negatively in 1Q20, its effect on Singapore businesses – 60% of revenue – will be visible in 2Q20.
  • We cut ComfortDelGro's FY20F-22F profits by 7%-14%. With expected near term earnings weakness and likely slow recovery in business to pre-COVID-19 levels.
  • We see limited catalysts to turn positive on earnings and share price outlook. Keep NEUTRAL with new SGD1.45 target price from SGD1.54, 6% downside.

COVID-19 pandemic impacted 1Q20 business.

  • ComfortDelGro (SGX:C52) reported 1Q20 PATMI of SGD36m (-26% q-o-q, -49% y-o-y) amidst sharp decline in EBIT for its public transport and taxi businesses. Public transport EBIT fell 39% y-o-y to SGD33.6m; while taxi EBIT crashed 92% y-o-y to SGD2.4m.
  • ComfortDelGro also reported operating losses for its UK and China businesses during 1Q20. While businesses in both countries were impacted by COVID-19, UK public transport business was affected by bad weather. During 1Q20, China taxi rentals were reduced to virtually rent-free in response to COVID-19 lockdowns.

Near-term outlook remains bleak.

  • ComfortDelGro noted that service fees received under Singapore’s Bus Contracting Model is a function of mileage contracted. The decline in MRT ridership and some reduction in bus frequencies during the Circuit Breaker (CB) period should translate into lower earnings for Singapore public transport business in 2Q20. COVID-19 pandemic will likely also lead to lower earnings for overseas public transport business in 2Q20.
  • The impact on taxi earnings from full rental waiver granted for Singapore taxi fleet in April and May 2020 will be visible in 2Q20. While some relief schemes for taxi drivers have been extended until Sep 2020, we believe ComfortDelGro will have to continue offering additional incentives to retain taxi drivers.
  • ComfortDelGro's 2Q20 earnings will see significant cost support from the Singapore Government’s Job Support Scheme.

Net cash balance sheet can be put to good use.

  • While ComfortDelGro continues to renew and replace Singapore taxi fleet under the hybrid vehicles programme that was committed in 2019, overall capex declined sharply in 1Q20. It does not expect to undertake any new capex for the rest of 2020.
  • We believe ComfortDelGro could leverage on its net balance sheet of SGD26.4m and available facilities of SGD700m to undertake an accretive acquisition.

Rich valuation and lack of re-rating catalysts.

Shekhar Jaiswal RHB Securities Research | 2020-05-26
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 1.45 DOWN 1.540