COMFORTDELGRO CORPORATION LTD (SGX:C52)
ComfortDelGro - Taxi Business To See Gradual Improvement; BUY
- ComfortDelGro (SGX:C52) should benefit from gradual improvements in public transport ridership and increase in its taxi utilisation, as Singapore enters Phase 3 of re-opening the economy.
- Continued government support from extensions to the Jobs Support Scheme and Point-to-Point (P2P) Support Package to early 2021 should provide strong cost support for its Singapore operations.
- Given expectations of strong profit growth and an improvement in ROE for 2021F, we believe ComfortDelGro's current valuations remain attractive.
Phase 3 of Singapore re-opening to support further improvement in taxi business.
- Based on last published data for Jul 2020, the average daily number of trips for 1-shift taxis is now at c.75% of the historical average, while the same data for 2-shift taxis is now at c.85% of the historical average. This is expected to improve further, once Phase 3 of Singapore's reopening commences.
- The Singapore Government will soon announce details on Phase 3, which will be the "new normal" until a vaccine or treatment is found for COVID-19. It is expected that restrictions put in place during the “circuit breaker’ period will be relaxed further.
Regulations to be rationalise taxi competition.
- A news report suggests that the regulatory framework for the point-to-point transport sector, which is expected to level the playing field between taxi operators and private-hire operators, will kick in by the end of October. Similar to taxi operators, the regulations will require private-hire operators like Grab and Gojek to be licensed, pay licence fees, and abide by vehicle safety measures.
- Last month, Land Transport Authority (LTA) announced the alignment of eligibility criteria for taxi driver vocational licences (TDVL) and private-hire car drivers’ vocational licences (PDVL). All new PDVL applicants must be Singaporean citizens aged at least 30 years, with a minimum of one year of driving experience. This could limit the addition of new drivers for private-hire operations.
- The private-hire fleet size is already witnessing a decline, with the number of cars declining by 6.6% YTD according to the LTA.
ComfortDelGro's valuations remain compelling.
- The expected gradual improvement in public transport ridership during 2021 and the stabilisation of ComfortDelGro’s taxi business should support the return of profit growth in 2021F.
- Our DCF-derived SGD1.70 Target Price implies 17.7x 2021F P/E, which is slightly higher than ComfortDelGro’s 10-year average of 15.7x. We believe this is fair, amid expectations of more than 150% profit growth in 2021F.
- On a P/BV basis, ComfortDelGro Share Price is trading at a historical low of 1.2x, which we believe fails to capture the expected improvement in ROE in 2021F.
- See ComfortDelGro Share Price; ComfortDelGro Target Price; ComfortDelGro Analyst Reports; ComfortDelGro Dividend History; ComfortDelGro Announcements; ComfortDelGro Latest News.
Shekhar Jaiswal
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-10-07
SGX Stock
Analyst Report
1.70
UP
1.550
