ComfortDelGro - RHB Invest 2020-11-13: Q-o-q Improvement In 3Q20; Reiterate BUY


ComfortDelGro - Q-o-q Improvement In 3Q20; Reiterate BUY

  • ComfortDelGro’s reported operating profit in 3Q20 was in line with our expectation, despite lower support from the Government, as public transport and taxi businesses witnessed a q-o-q improvement.
  • While ComfortDelGro's share price could see near-term weakness amid earnings headwinds from the announced lockdown in the UK, we estimate a strong growth in 2021 aided by continuing normalisation of operating environment for its businesses in Singapore and overseas.
  • We maintain that ComfortDelGro’s current valuations remain compelling. Keep BUY with S$1.70 target price, 13% upside and c.5% FY21F yield.

ComfortDelGro's 3Q20 business update.

  • Y-o-y weakness in business was expected amid impact from COVID-19. However, in line with expectations, ComfortDelGro (SGX:C52) reported a 23% q-o-q improvement in revenue in 3Q20 and reported a PATMI of S$22m (2Q20: a loss of S$42m).
  • Public transport and taxi business revenue increased q-o-q. Public transport EBIT increased 48% q-o-q despite a substantial decline in COVID-19 Government relief received across all its business operations.
  • Taxi business reported a significantly lower operating loss vs 2Q20 amid lower rental rebates offered to taxi drivers and stabilisation of fleet idle rate to mid-single digits.
  • ComfortDelGro took a S$18m impairment in its UK business of which S$13m came from its UK taxi business, where it does not expect the business environment to return to earlier levels even in post COVID-19 era.

Growing cash balance amidst positive FCF generation.

  • In 3Q20, ComfortDelGro generated FCF of S$112m. At the end of 3Q20, it had a net cash position of S$116m and available credit facilities of S$700m. Although ComfortDelGro will continue to spend capex on its Singapore taxi fleet renewal and replacement under its hybrid vehicle programme, its overall capex for the year is expected to remain lower than last year.
  • Despite a rising cash balance, we believe ComfortDelGro's 2020 dividend payout will remain muted, with likely recovery in dividend payment in 2021 on the back of higher earnings.

We envision strong earnings growth in 2021.

  • We lower 2020 earnings 14% to account for seasonally-weaker fourth quarter and lower earnings from the UK amid recently-announced lockdown. Nevertheless, gradual normalisation of business activities in Singapore and ComfortDelGro’s other key markets should support an improvement in public transport ridership and stabilisation of taxi business during 2021.
  • We expect ComfortDelGro’s overseas business to see some improvement as well in 2021.

Compelling valuation.

Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-11-13
SGX Stock Analyst Report BUY MAINTAIN BUY 1.700 SAME 1.700