ComfortDelGro - Maybank Kim Eng 2020-11-13: Clearer Road Ahead


ComfortDelGro - Clearer Road Ahead

Emerging out of the woods; Maintain BUY

  • ComfortDelGro (SGX:C52)'s 9MFY20 earnings missed MKE/consensus estimate. This is mainly driven by S$17.5m impairment on taxi and regional coach businesses in UK this quarter, as well as negative operating leverage.
  • That said, we are seeing green shoots in China and Singapore as COVID-19 situations are under-control.
  • We have fine-tuned our operational forecast and raised FY20E core earnings by 0.9%. Maintain BUY on ComfortDelGro with DCF Target Price of S$1.76.
  • Key risk includes worsening of COVID-19 situation in key operating countries.

Swung back into the black in 3Q20

  • ComfortDelGro's 9MFY20 revenue fell 19.3% y-o-y to S$2.34b on contraction from public transport services (-10.1%), taxi (-42.1%) and automotive engineering (- 13.7%) due to lockdown amid COVID-19. See ComfortDelGro's announcements.
  • Bottom line was impacted by negative operating leverage and impairment of S$48.3m on taxi and regional coach businesses in Singapore and UK. This was cushioned by various government reliefs of S$126.5m (mainly SG - S$100.3m) for continuing transport connectivity.
  • That said, operational performance in 3Q20 showed improvement since 2Q20, indicating that ComfortDelGro is emerging out of the worst.

Green shoots in Singapore, Australia and China

  • We are seeing green shoots in countries such as Singapore (55.1% of EBIT), Australia (18.9%) and China (3.4%) as COVID-19 situation is under-control.
  • Singapore, are expecting gradual resumption of business activities and are in negotiation with countries on travel bubbles. ComfortDelGro noted that ridership of rail, bus and taxi have recovered to 55/70/80% of pre-Covid levels. As SG is seeing more travel activities, we do not expect substantial rental rebates going forward.
  • Meanwhile in Australia, movement restriction was being lifted in Oct after COVID-19 situation in Victoria is under-control.
  • In China, social activities have almost resumed back to pre-Covid levels regionally.
  • We expect UK/Ireland to be lacklustre as the country is facing a second lockdown.
  • We have adjusted our FY20E EBIT to account for government reliefs, which was previously under exceptional.

Structural growth remains intact

Kareen Chan Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-11-13
SGX Stock Analyst Report BUY MAINTAIN BUY 1.760 SAME 1.760