ComfortDelGro - CGS-CIMB Research 2020-08-16: Ridership Slow To Recover


ComfortDelGro - Ridership Slow To Recover

  • ComfortDelGro’s normalised operating loss of S$101m in 2Q20 was wider than expected. No interim dividend was declared due to 1H20 losses (FY19: 4.5 Scts).
  • Ridership recovery in Singapore remains slow. Without government reliefs, public transport and taxi segments could remain loss-making in 3Q20.
  • Further relaxation of COVID-19 restrictions is needed to support earnings recovery and re-rating of share price.
  • Maintain HOLD with lower Target Price of S$1.40.

ComfortDelGro’s 2Q20: Impacted by lockdowns

  • ComfortDelGro (SGX:C52) reported a 2Q net loss of S$42m, bringing 1H20 into a net loss position of S$6m. Stripping out government reliefs (+S$82m) and impairment losses (-S$31m), ComfortDelGro’s normalised operating loss of S$101m in 2Q20 was wider than our expectations.
  • Key drags during the quarter were taxi (S$57m operating loss) and SBS Transit (SGX:S61) (S$44m operating loss), given the full taxi rental waiver and low rail ridership during the 2-month circuit breaker in Singapore.
  • Due to 1H20 losses, ComfortDelGro did not declare an interim dividend (FY19: 4.5 Scts).

Longer pain as we expect ridership recovery to be gradual

  • Ridership normalisation in Singapore since the lifting of the COVID-19 lockdown has been slower than expected, as working from home (WFH) remains the default option in the current phase of reopening. Rail ridership in Jul remained low at c.50% of pre-COVID-19 levels (June: 36%).
  • To support taxi drivers’ earnings, ComfortDelGro announced 30% daily taxi rental rebate until 15 Sep, a slight step down from the 40% rental rebate given from 16 Jul to 15 Aug. Management guided that the rebates will continue to taper in the coming months, but this initiative could be extended till year-end, versus previously guided Sep.
  • Based on current trajectory, we estimate both public transport and taxi segments to remain in the red in 3Q20 (without factoring in government reliefs). We lower our FY20-22F core EPS (excludes impairment, which is non-cash) by 2.8-5.2% to factor in higher taxi rental rebates and lower ridership assumptions for public transportation, partially offset by higher government reliefs.

Maintain HOLD with a lower Target Price of S$1.40

  • To see a faster ridership recovery in Singapore, we believe either one of the following has to happen:
    1. relaxation of work-from-home arrangements, or
    2. earlier transition into phase 3 of reopening.
  • Reiterate HOLD.
  • See ComfortDelGro Share Price; ComfortDelGro Target Price; ComfortDelGro Analyst Reports; ComfortDelGro Dividend History; ComfortDelGro Announcements; ComfortDelGro Latest News.
  • While the worst is likely over with ComfortDelGro’s key operating regions emerging from lockdowns, we expect a bumpy road to recovery, with governments having to maintain a cautious balancing act between lifting restrictions to allow the economy to recover and preventing another wave of COVID-19.
  • With the EPS cuts, our Target Price is lowered to S$1.40, pegged to 13.3x FY21F P/E, still based on 1 s.d. below ComfortDelGro’s historical mean.
  • Upside risks include potential rail financing policy reform or earnings-accretive M&As, while downside risks include steeper taxi fleet decline and slower ridership recovery.

ONG Khang Chuen CFA CGS-CIMB Research | Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-16
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.4 DOWN 1.460