ComfortDelGro - UOB Kay Hian 2020-05-26: Earnings Expected To Decline In 1H20. Looking Ahead To Gradual Recovery


ComfortDelGro - Earnings Expected To Decline In 1H20. Looking Ahead To Gradual Recovery

  • ComfortDelGro recorded earnings of S$36m in 1Q20 (-49% y-o-y). 1H20 profit levels will be expectedly hard hit by the lockdown measures in various countries, although costs can be trimmed to a larger extent by the Jobs Support Scheme and foreign worker levy from 2Q20 onwards.
  • Looking past the near-term weakness, we opine that the group can still emerge as a dominant land transport operator.
  • Maintain BUY with a PE-based target price of S$1.82.

ComfortDelGro's 1Q20 operational update.

  • ComfortDelGro (SGX:C52) reported 1Q20 headline net profit of S$36m (-49% y-o-y, -53% q-o-q). 1Q20 accounted for 20% of our full-year estimates, slightly below expectations. The group expects the lockdowns in Singapore, Australia and the UK to significantly hurt business in 1H20.

Initial effects of COVID-19.

  • Revenue dropped to S$862m (-9% y-o-y, -14% q-o-q) mainly affected by weaker taxi and public transport segments. While ancillary services were mostly deemed essential services and remained open to a certain extent, there were severe knock-on effects of reduced land transport. Operating margins dipped to 6.5% (-4.8 ppt y-o-y, -2.0ppt q-o-q). Net cash position stood at S$26m.

Public Transport: 1H20 will be expectedly weak.

  • Revenue was S$656m (-4% y-o-y, -12% q-o-q). Public transport was affected to an extent, by stay-home measures, largely seen towards the end of 1QFY20. On the local front, higher rail fares were offset by bus fuel indexation impact.
  • SBS Transit saw a dip in its public transport services (-S$7.3m; -2.2% y-o-y), whereas commercial services dropped to a larger extent (-S$4.5m, -27.4% y-o-y) in 1Q20 from lower advertising. The Circuit Breaker period will see a larger reduction of rail ridership as well as suspension of selected bus services, though management noted that the reduction in bus services is minimal.
  • Costs will be trimmed by the Jobs Support scheme, though ComfortDelGro also provided accommodation to affected Malaysians due to Malaysia’s Movement Control Order (MCO). Post Circuit Breaker, capacity will be maintained while enhanced cleaning measures will continue to take place.

Overseas buses also impacted.

  • UK buses were affected by bad weather and COVID-19’s impact on tourism. Management noted its Scotland and Wales buses were affected by lower tourist numbers, while Metroline operated on thin margins. UK operations appear to be affected to a larger extent, with public bus frequency reduced to weekend levels.

Taxi: China taxis affected in 1Q20, but on the path to recovery.

  • Taxi revenue was down (-26% y-o-y, -24% q-o-q) with weaker contribution from China in 1Q20, seeing virtually rent-free taxis in response to COVID-19 lockdowns, though the rebates were only seen in 1Q20.
  • Management noted that with the reopening in China, rides have seen a recovery despite not reaching pre-COVID-19 levels yet. Singapore taxis received the first round of rental relief in mid-Feb 20 but the bulk of rental rebates will primarily be seen during the Circuit Breaker period.
  • Post Circuit Breaker, current relief schemes will extend till Sep 20, and may be subjected to further review.

Still aiming high.

  • The recovery in ridership is expected to be gradual in nature, and we expect ComfortDelGro to be prudent in its approach. The group continues to actively pursue initiatives to mitigate COVID-19 impacts for its driver partners in the near term, including additional taxi trips from food delivery which will extend into Sep 20. Management still aims to retain its market leadership status in the taxi space.
  • Looking past the near-term weakness, we opine that the group can still emerge as a dominant land transport operator.

Maintain BUY

ComfortDelGro Share Price Catalyst

  • Easing of stay-home measures.
  • Bus tender contract wins.
  • Earnings-accretive overseas acquisitions.
  • Regulatory changes in public transport.

Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-05-26
SGX Stock Analyst Report BUY MAINTAIN BUY 1.820 SAME 1.820