COMFORTDELGRO CORPORATION LTD (SGX:C52)
ComfortDelGro - Near Term Headwinds In The UK; Stay BUY
- ComfortDelGro's share price could see near-term weakness amid earnings headwinds from the announced lockdown in the UK. However, with strong control on COVID-19 and continued Government support from extensions to the Jobs Support Scheme (JSS) and Point-to-Point Support Package to early 2021, its public transport and taxi businesses in Singapore should see q-o-q improvements.
- We remain confident of ComfortDelGro's profit recovery in 2021 and believe current valuations remain compelling. Reiterate BUY with S$1.70 target price, 23% upside and c.5% FY21F yield.
Renewed lockdown in the UK is near term negative.
- ComfortDelGro (SGX:C52) offers scheduled bus, coach, taxi circuit and private hire services in the UK. In 2019, UK accounted for 22% of revenue and 10% of operating profit. Amid weak business conditions caused by COVID-19, UK business reported an operating loss of S$6m in 1H20.
- With a second wave of COVID-19 spreading across the country, UK has been placed on national lockdown for four weeks. But, unlike the restrictions in spring, schools, colleges and universities can stay open. Nevertheless, this is expected to dent any expectations of earnings recovery in the UK for 2H20.
Recovery in Singapore should continue.
- Singapore accounted for 58% of revenue and 66% of operating profit for ComfortDelGro in 2019. As highlighted in our earlier reports dated ComfortDelGro - RHB Invest 2020-10-08: Taxi Business To See Gradual Improvement; BUY and ComfortDelGro - RHB Invest 2020-10-19: Public Transport Ridership Is Improving; Stay BUY, we maintain that sequential improvement in ComfortDelGro’s Singapore earnings could continue.
- As Singapore enters Phase 3 of re-opening the economy, ComfortDelGro’s bus operating frequencies should gradually revert to pre COVID-19 levels and ridership for its rail business should continue to witness m-o-m improvements over the next few quarters. This, along with the extension to the Jobs Support Scheme (JSS) to early 2021, should help ComfortDelGro report improved earnings for its public transport business.
- Implementation of a regulatory framework for the point-to-point transport sector should level the playing field among taxi operators and private-hire operators and help arrest the ongoing decline in ComfortDelGro’s taxi fleet.
Remain optimistic of strong earnings recovery in 2021.
- With the cautious approach that the Government has taken towards re-opening of the economy, we believe Singapore should be able to avoid the re-emergence of COVID-19. This should translate into an improvement in public transport ridership and stabilisation of Singapore taxi business during 2021.
- On y-o-y basis, we expect ComfortDelGro’s overseas business to see some improvement as well in 2021. From a low base of 2020, we expect ComfortDelGro to report more than 150% earnings growth in 2021.
Compelling valuation.
- Our target price implies 17.7x 2021F P/E, which is slightly higher than ComfortDelGro’s 10-year average P/E of 15.7x. ComfortDelGro is also trading at a record low P/BV of 1.2x, which fails to capture the improvement in ROE.
- 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/
2020-11-04
SGX Stock
Analyst Report
1.700
SAME
1.700
