ComfortDelGro - DBS Research 2020-08-16: Past Its Worst Rocky Stretch


ComfortDelGro - Past Its Worst Rocky Stretch

  • ComfortDelGro (SGX:C52)'s 1H20 losses as expected, largely on impairments, impact from lockdowns and reduced business activities.
  • Absence of interim dividend is not a surprise.
  • Gradual recovery but worst should be over; solid balance sheet enables it to withstand crisis.
  • Casting sights on recovery; P/B at -2SD of its mean.

Worst quarter, but expect improvement ahead

Past its most rocky stretch; heading towards recovery.

  • ComfortDelGro's share price has retreated to the level we upgraded the counter on 1 June, after briefly touching our Target Price within about two weeks of our upgrade. While 1H20 losses may seem dire, this has largely been expected.
  • We continue to maintain our view on ComfortDelGro, expecting higher odds of share price appreciation over the next 6-12 months. While outlook remains challenging and recovery looks cloudy, we believe that the worst is over.
  • Maintain our BUY recommendation on ComfortDelGro, as valuations, based -2 std deviation below its historical P/B average, has priced in the negatives. Our Target Price is S$1.63, based on 15x FY21F PE, -0.5 std deviation below its historical average of 16.8x.

Slashed FY20F earnings, trimmed FY21F but expect sequential improvement from hereon.

  • After 1H20 performance, we have further slashed our ComfortDelGro's FY20F earnings by 64% to factor in the impairment taken in 1H20, coupled with lower public transport revenue and operating deleverage.
  • That said, while we have also lowered our FY21F earnings by 6%. We expect ComfortDelGro’s operating performance to post a strong rebound, largely from the low base seen in 2Q20, as the world was in lockdown mode. Our projections are premised on expectations that we do not enter a second lockdown, which we believe is remote at this juncture.

1H20 losses were expected; registered attributable net loss of S$6m.

  • ComfortDelGro’s recent operating results were the worst in its history since its formation as a combined entity in 2003. The group reported 1H20 Net Loss Attributable to Shareholders of S$6m, a sharp reversal from 1H19’s profit of S$146.3m. This arose from the deep impact on all its business segments arising from the COVID-19 global pandemic. Besides crimped revenues, 1H20 also saw impairments of S$30.8m.
  • Group revenue for 1H20 dropped by 20.8% y-o-y to S$1.53bn, arising from lower rail ridership and mileage from its public transport segments, rental reliefs/ waivers for taxi drivers, reduced business at its automotive engineering business, as well as full/ partial closure of its other segments.
  • Absence of 1H20 interim dividend; pencil in token final dividend but outcome highly dependent on outlook in early 2021. For the first half, the group had government reliefs amounting to S$82.3m, resulting in an operating profit of S$6.6m. Excluding this, it would have recorded an operating loss of S$75.7m in 1H20, and an attributable net loss of S$66.1m. Not surprisingly, there was no interim dividend declared given the dire state, and to conserve cash.

The Group would review its final dividend at end of FY20.

  • We have penciled in a token 1.55Scts DPS for FY20, based on its 50% dividend policy. This would be highly dependent on the recovery pace and the outlook for FY21, and we are not ruling out the absence of a final dividend come Feb 2021.

Group revenue impacted on all fronts.

  • Arising from weaker revenue from all its business segments, group revenue slumped by 20.8% (-S$400.3m) y-o-y to S$1.53bn. This was largely contributed by public transport services (-S$181.2m), taxi (-S$159.6m) and automotive engineering (-S$46.2m).
  • While operating costs also dipped by S$102.2m (-6% y-o-y), this was smaller vis-à-vis the decline in topline. As a result, it recognized an operating loss of S$75.7m, from operating profit of S$222.4m in 1H19. With government reliefs amounting to S$82.3m, largely from Jobs Support Scheme in Singapore, as well as in the UK, China and Australia, operating profit for 1H20 was S$6.6m.

Segmental Performance

Public transport impacted by lower ridership.

  • The public transport segment was also not spared, and was impacted by lower rail ridership, lower service fees from fuel indexation continuing from the trend seen in 1Q20. Along with lower bus schedules in the UK, reduction in services and weaker A$, revenue slumped by 12.9% y-o-y to S$1.23bn. Excluding government reliefs (S$63.3m), operating profit for the segment would have registered a loss of S$7m. As a result, operating profit came in at S$56.3m, a marked decline of 52% y-o-y from 1H19.

Rail ridership deeply impacted by Circuit Breaker (CB), though seeing improvements.

  • Rail ridership was deeply impacted during the CB period, and as offices instituted work from home (WFH) practices since as early as Feb. Ridership in 2Q20 saw deep contraction of about 75% on average. While average fares for its MRT and LRT lines saw higher increases compared to the fare increase instituted in Dec 2019, we believe this arose from higher average mileage per trip. As of July, we noted that rail ridership has improved sequentially, and registered a drop of c.50% y-o-y.
  • While management indicated that recovery seems to be a tad slower than their internal expectations, this is largely within the assumption we have penciled in. For the year, we have penciled in rail ridership to drop by 32%.
  • See ComfortDelGro Share Price; ComfortDelGro Target Price; ComfortDelGro Analyst Reports; ComfortDelGro Dividend History; ComfortDelGro Announcements; ComfortDelGro Latest News.

Andy SIM CFA DBS Group Research | https://www.dbsvickers.com/ 2020-08-16
SGX Stock Analyst Report BUY MAINTAIN BUY 1.63 DOWN 1.680