ComfortDelGro - RHB Invest 2020-08-17: Expect a Gradual Earnings Recovery; BUY


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.

Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-08-17
SGX Stock Analyst Report BUY MAINTAIN BUY 1.55 DOWN 1.650