ComfortDelGro - Maybank Kim Eng 2020-06-28: Bumpy Ride, BUY On Dips


ComfortDelGro - Bumpy Ride, BUY On Dips

1HFY20 net loss, as expected; BUY on weakness

  • ComfortDelGro (SGX:C52) issued a profit warning. See ComfortDelGro Announcements. BUY on weakness.
  • ComfortDelGro's 1HFY20 losses were likely due to impairment in its taxi division. We had already factored in operation weakness into our forecasts. Structural growth is intact, while ComfortDelGro remains a key beneficiary from rising ridership as Singapore emerges from the lockdown.
  • Maintain DCF-based SGD1.98 Target Price.
  • 2QFY20 results in mid-Aug.
  • Downside risk: negative operating leverage.

ComfortDelGro issued profit warning

  • ComfortDelGro is expecting a 1HFY20 net loss due to:
    1. significant impact of Covid-19 on its operating regions; and
    2. the possibility of impairment of investments in certain local and overseas subsidiaries.
  • We think impairment could come from its taxi business, which is bearing the brunt of Covid-19. This was expected and we have built in substantial weakness in our FY20E taxi EBIT.
  • Going forward, we do not expect further material rental reliefs for taxis given Singapore’s Phase 2 re-opening.

Impairment could be from taxi business

  • ComfortDelGro did not indicate which division is subject to impairment but we think it is likely the taxi business from COVID-19 pressure and idle fleets. The Group took an earlier impairment charge of SGD27.3m in FY19 for taxis in Singapore and China given competition from private-hire players. This was 0.5% of FY19 total assets. A similar charge off now would imply an impairment of SGD26.2m – a 17% downside to our FY20E EPS.

Losses for taxi division factored in

  • ComfortDelGro had already previously warned that its taxi division could face losses since Mar-20 due to the substantial amount of taxi rental reliefs (~SGD117m) given to taxi drivers amid Covid-19. We have already built such weakness into our model.
  • We expect taxi EBIT margin to drop sharply to 2% in FY20E, from 15.6% in FY19. But with Singapore’s Phase 2 re-opening since 1 June, we do not expect further substantial rental rebates going forward, which may offset some of the downside from impairment charges.

Structural growth and recovery play unchanged

Kareen Chan Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-06-28
SGX Stock Analyst Report BUY MAINTAIN BUY 1.980 SAME 1.980