ComfortDelGro - CGS-CIMB Research 2020-05-25: Speed Bumps


ComfortDelGro - Speed Bumps

  • ComfortDelGro's 1Q20 net profit fell 49% y-o-y, below expectations at 20.7% of our FY20F, as the two largest segments (public transport and taxi) were hurt by Covid-19.
  • Taxi segment could go into the red with rental relief measures to keep drivers. Public transport segment is also impacted, but JSS will be a significant help.
  • Maintain HOLD with a lower Target Price of S$1.50.

Weak 1Q20 results due to Covid-19

  • ComfortDelGro (SGX:C52) posted a 1Q20 net profit of S$70m S$35m (-26.2% q-o-q, -48.9% y-o-y), below expectations at 20.7% of our FY20F. Public transport segment recorded a 39% y-o-y EBIT decline due to lower ridership and impact from bus fuel indexation; while taxi segment saw an EBIT drop by 92% y-o-y due to smaller taxi fleet and rental rebates rolled out in SG and China.
  • We understand that ComfortDelGro did not recognise any Job Support Scheme (JSS) subsidy in 1Q20.

Taxi segment to remain the key drag

  • We expect the taxi segment to report an operating loss of S$32m in FY20F (FY19: segment EBIT of S$104m), after taking into account the 2-month full rental waiver during SG’s circuit breaker period, and ComfortDelGro’s commitment to extend its additional daily rental relief of up to S$26.50 to cabbies until Sep.
  • Even after the circuit breaker measure is lifted in Singapore, we believe cabbies’ earnings will take at least 3-6 months to normalise given the weak tourism sector and continued safe distancing measures by the government. We do not rule out a further extension of the rental rebates, as it is crucial for ComfortDelGro to retain its taxi fleet through this Covid-19 crisis.

Public transport segment also impacted, but JSS will help

  • Public transport services continued to operate in ComfortDelGro’s major markets throughout the lock-downs, but at a reduced frequency. Revenue recognition under bus contracting model (BCM) will be impacted slightly as service fees collectible is a function of bus mileage operated.
  • Meanwhile rail revenue could see a bigger hit as ComfortDelGro is exposed to ridership risk.
  • ComfortDelGro is actively managing its operating costs to cushion the fall in revenues; and we estimate c.S$90m JSS subsidies to be a significant help. Overall, we expect ComfortDelGro to record a 45.6% core net profit decline in FY20F.

Maintain HOLD with a lower Target Price of S$1.50

ONG Khang Chuen CFA CGS-CIMB Research | Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-05-25
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.50 DOWN 1.550