ComfortDelGro - RHB Invest 2020-08-06: Look Beyond Upcoming Weak 1H20 Results; BUY


ComfortDelGro - Look Beyond Upcoming Weak 1H20 Results; BUY

  • Reiterate BUY, SGD1.65 Target Price, 19% upside and c.6% 2021F yield.
  • ComfortDelGro's share price has recovered by 5% from its 52-week low, and remains well-supported by a historic low P/BV. Investors should look past the near-term earnings weakness, and use its current low share price as an opportunity to accumulate the stock – as ComfortDelGro remains on track to report strong earnings growth in 2021.
  • A faster-than-estimated recovery in public transport and taxi earnings, winning new bus contracts, and an earnings-accretive acquisition should re-rate the stock in the near term.

1H20 results will be the worst in ComfortDelGro’s history.

  • ComfortDelGro (SGX:C52) is expected to announce a net loss in 1H20, when it reports results on 14 Aug. The negative impact on its business due to COVID-19 should not come as a surprise, given the decline in public transport ridership and extension of rental discounts to taxi drivers once “Circuit Breaker” (CB) measures were implemented.
  • ComfortDelGro is also expected to report an impairment of its investments. At this moment, it is difficult to assess the magnitude of impairment charge.

Potential re-rating catalysts.

  • Although Singapore has eased the CB measures, we believe the resumption of workplace activities will be more gradual in nature. Nevertheless, we are surely well past the lowest point for public transport ridership and the sharpest decline in the company’s taxi fleet.
  • An earlier-than-estimated recovery in public transport ridership will be positive for ComfortDelGro's share price. Re-rating catalysts could also come from winning Sembawang and Bulim bus contracts in Singapore, tenders for which had closed on 30 Mar.
  • We maintain that ComfortDelGro continues to be well-funded and could undertake an earnings-accretive acquisition, should an opportunity arise. As at end-1Q20, it had a SGD26m net cash balance, with access to an additional c.SGD700m worth of facilities.

Worst may be behind us, as ComfortDelGro seems set to deliver strong growth in 2021.

  • As we get closer to the end of 2020, a gradual recovery in ridership for ComfortDelGro’s public transport business, and the stabilisation of its taxi business should support strong earnings growth in 2021. We expect ComfortDelGro to deliver 40% y-o-y profit growth next year. The Street is more optimistic than us about ComfortDelGro’s FY21F earnings, with profit growth forecasted at 59% y-o-y.

Strong earnings growth and below-average valuation support our rating.

Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-08-06
SGX Stock Analyst Report BUY MAINTAIN BUY 1.650 SAME 1.650