COMFORTDELGRO CORPORATION LTD (SGX:C52)
ComfortDelGro - Expect a Gradual Earnings Recovery; BUY
- While ComfortDelGro's share price is expected to remain weak in the near term amidst poor 1H20 earnings, we note a gradual improvement in public transport ridership and m-o-m improvements in its taxi business. The winning of bus tenders in Singapore will be near-term positive.
- The weakness in ComfortDelGro's share price offers investors an opportunity to accumulate the stock – as, operationally, the worst may be behind it, and ComfortDelGro seems set to deliver strong growth in 2021.
- Reiterate BUY with new SGD1.55 Target Price from SGD1.65, 12% upside and 5.1% 2021F yield.
Disappointments from ComfortDelGro's 1H20 earnings.
- As expected, ComfortDelGro (SGX:C52) reported its worst-ever results in 1H20. Amidst the current weak business environment, it made a provision of SGD30.8m for impairments on vehicles and goodwill in the mid-year review. It also expects to undertake a similar review at year’s end.
- Excluding provisions for impairments and good will, the taxi business reported an operating loss amidst rental discounts being offered to taxi drivers. Lower ridership and impact from the fuel indexation pushed margins lower for the public transport business.
- Amidst the 1H20 loss reported, ComfortDelGro did not announce an interim dividend (1H19: 4.5 cents). It will maintain its dividend policy to pay out 50% of PATMI and will review the final dividend for 2020 at the end of 2H20.
The positives and re-rating catalysts.
- The taxi business has seen m-o-m improvements since the relaxation of Circuit Breaker measures, and ComfortDelGro has lowered the taxi rental discount to 30% from 50% for the 15 Aug-15 Sep period.
- If the taxi business continues to improve, we expect ComfortDelGro to gradually reduce and eventually remove the rental discount by year’s end. The COVID-19 government relief that helped ComfortDelGro report an operating profit in 1H20 will remain available in 2H20 as well.
- Near-term re-rating catalysts could also come from winning the Sembawang and Bulim bus contracts, the announcement of which is expected in the next 1-2 months. An earlier-than-estimated recovery in public transport ridership should be also positive for ComfortDelGro's share price.
On track for a strong growth in 2021.
- Despite lowering 2020F profit by 21% and 2021F-2022F profit by 15-17%, we maintain that a gradual recovery in public transport ridership and stabilisation of its taxi business should support c.50% growth in 2021. Our SGD1.55 Target Price for ComfortDelGro implies 17.6x 2021F P/E, which is slightly higher than the stock’s 10-year average of 15.5x. Based on our estimates, ComfortDelGro is trading at 0.30x 2021F PEG.
- See ComfortDelGro Share Price; ComfortDelGro Target Price; ComfortDelGro Analyst Reports; ComfortDelGro Dividend History; ComfortDelGro Announcements; ComfortDelGro Latest News.
- The downside risks to earnings should come from delayed earnings recovery amidst a second wave of COVID-19 infections or a material and permanent decline in business margins.
Shekhar Jaiswal
RHB Securities Research
|
https://www.rhbinvest.com.sg/
2020-08-17
SGX Stock
Analyst Report
1.55
DOWN
1.650
