Singapore Land Transport - DBS Research 2020-09-16: Extension Of Special Relief Fund

COMFORTDELGRO CORPORATION LTD (SGX:C52)

Singapore Land Transport - Extension Of Special Relief Fund

Special Relief Fund extension for P2P industry; S$10/day rent waiver for taxis/private hire cars.
ComfortDelGro (SGX:C52) to extend 25% rental waiver for its taxi hirers, stepped down from 30% earlier.
New Private Hire Drivers need to be Singapore citizens above 30 years of age, with one year minimum driving experience.
At 1.2x P/BV which is -2SD of its historical average, we maintain BUY for ComfortDelGro.

The Land Transport Authority (LTA) has announced an additional S$112m to support the Point-to- Point (P2P) industry. It has indicated that with the resumption of some activities in Phase 2, demand for taxi and Private Hire Cars (PHC) has increased but ridership is still around 70% of pre-COVID levels.

Of the total SRF amounting to S$112m, the bulk (S$106m) will go towards providing rental reliefs for active taxi and PHC drivers. This amounts to rental relief of about S$10/day per vehicle, as per the original relief announced earlier in February 2020. With that, LTA indicated that taxi operators have also pledged to continue providing matching rental rebates worth a total of S$29m to hirers.

The government will also be extending reliefs for operators, which include
1. Special Relief for unhired taxis, amounting to S$2,200 per unhired taxi over a 6- month period till March 2021 (estimated cost of S$4.6m);
2. Licence fee waiver extension for a further three months (previously-announced 9-month period waiver) at a cost of 1.2m.

Separately, ComfortDelGro has also announced a 25% rental waiver for its hirer from 16 Sep to 31 Oct. We estimate that on average, the waiver could amount to about S$30/day, of which S$10 is from the government’s SRF (as per above).
This is a progressive step down from the 30%/40%/50% rental waiver extended in the past few months post the Circuit Breaker period. ComfortDelGro has also indicated that it would continue to at least match the S$10/day SRF that the Government will extend till March 2021.

The eligibility criteria for Private Hire Car Driver Vocational Licence (PDVL) is changed with effect from 15 Sep 2020 (5.30pm). All new applications for PDVL must be Singapore citizens and are at least 30 years old, with a minimum of one year’s driving experience. This aligns the PDVL with the Taxi Drivers Vocational Licence (TDVL).

The extension of rental waiver from ComfortDelGro is not totally surprising, given the gradual recovery in ridership. The government’s extension of SRF, in our view, is a welcome relief to support the industry and ease the burden on operators, in our view. In fact, the gradual stepdown in rental waiver by ComfortDelGro shows ridership improvement and is in accordance to our thesis and observation.

The alignment of the eligibility criteria was a long time coming, in our view. In fact, we were expecting development on this during the P2P Transport Bill 2019. In our view, this will help limit potential new drivers causing further demand-supply distortion, especially in the current period of lower demand.

We continue to hold the view that the occurrence of COVID and its impact will catalyse the consolidation of the P2P industry. With private rental car fleet in Singapore ballooning to over 70,000 vehicles (of which over 50,000 are chauffeur-driven), along with current fleet of 16,000 taxis, this would cause the weaker players to exit the industry.

We maintain our thesis on ComfortDelGro with target price as per our report ComfortDelGro - DBS Research 2020-09-03: Has Market Priced In Phase 3? We Think Not.
We believe valuations are attractive at 1.2x P/BV (-2SD of historical mean) and that the market has not priced in Phase 3 recovery. We also see higher odds of ComfortDelGro share price appreciation over the next 6-12 months vis-à-vis downside.
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/ 2020-09-16

SGX Stock Analyst Report BUY MAINTAIN BUY 1.960 SAME 1.960