ComfortDelGro - UOB Kay Hian 2020-11-13: 3Q20 Sequential Recovery But The UK Takes A Detour

COMFORTDELGRO CORPORATION LTD (SGX:C52)

ComfortDelGro - 3Q20 Sequential Recovery But The UK Takes A Detour

ComfortDelGro reported headline net profit of S$21.7m in 3Q20, a reversal from a loss in 2Q20. A recovery in rail ridership and easing of taxi rental waivers provided the uplift. However, the group recorded further impairment, largely for the taxi and coach business in the UK which remained hampered by new lockdown measures.
Looking forward, the easing of COVID-19 measures will continue to be a positive for ridership , including that for Phase 3 reopening.
Maintain BUY on ComfortDelGro with target price of S$1.78.

ComfortDelGro (SGX:C52) reported 3Q20 headline net profit of S$21.7m (including government relief), a reversal from a loss in 2Q20. The group recorded additional impairment provision of S$17.5m in 3Q20 for its UK taxi and coach businesses, which continued to be hard hit by the COVID-19 pandemic. Excluding impairments, we estimate 9M20 core earnings at S$64m, forming 46% of our full-year forecast, coming in below expectations.

Revenue rose 23% q-o-q in 3Q20, supported by higher transport activity levels after the easing of initial lockdowns. There were lower government reliefs in 3Q20 (-46% q-o-q), although ComfortDelGro is close to operating profitability before reliefs in 3Q20.

Revenue recovered to S$641m (-12% y-o-y, +12% q-o-q) in 3Q20. As of end-3Q20, daily ridership for the Downtown Line (DTL) and North-East Line (NEL) were at 53% and 60% of pre-COVID-19 levels respectively. Revenue was aided q-o-q by rail ridership as well as higher service levels from its bus business in the UK in Aug 20, after relaxing measures from the first COVID-19 wave.
ComfortDelGro noted that public transport in the UK continued to be operating at 100% levels although service frequencies might be under review in light of the new COVID-19 lockdown in Oct 20. Its Australia public bus business saw minimal impact to service levels and will likely see a gradual improvement in ridership levels on the easing of COVID-19 measures from end-Oct 20.

ComfortDelGro's Taxi revenue was S$109m (- 33% y-o-y, +115% q-o-q). We still expect to see a sequential improvement in 4Q20 as rental reliefs have eased to 25% currently from 3Q20 levels of 30-50%. Fleet size has slipped slightly to about 9,900 in Sep 20 although management noted there has not been much switching of drivers to private hires recently.
Ridership from tourists is still lacking and the return of tourism would bring ridership levels up considerably. However, impairment provisions remain tied to fleet size and 3Q20 impairments were recognised for the UK taxi business after further COVID-19 restrictions were imposed.

There has been a worsening resurgent wave of COVID-19 infections over the past weeks across UK cities with a second national lockdown in progress. In addition, there remains uncertainty with regard to funding of public transportation services. While the Transport for London has recently secured a bailout from the government to secure transportation services until Mar 21, it comes without additional fare increases. Bus service frequency levels may be affected if funding remains tight although we view any changes might be minimal in nature.

Phase 3 reopening remains a near-term uplift for ridership levels and we note there is still some runway for rail ridership to increase from the current 55% of pre-COVID levels. Potential news of vaccine administration in Singapore will also be viewed favourably for ComfortDelGro.

The second wave of restrictions continues to affect ComfortDelGro’s overseas bus businesses, with the new national restrictions in the UK in effect until early-Dec 20. Coach transportation continues to be affected by a lack of leisure travel. We account for lower contribution from its UK bus business in 2020-21.
Maintain BUY on ComfortDelGro with target price of S$1.78, pegged to 17.9x 2021F PE (previously 17.2x), or its forward mean PE, excluding outliers. Our PE multiple is a now pegged at the stock’s 5- year mean (previously 8-year mean) to reflect a more recent range.
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ComfortDelGro's share price currently trades at 15x 2021F PE, and is seeing signs of recovery in the Singapore market.

Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-11-13

SGX Stock Analyst Report BUY MAINTAIN BUY 1.780 SAME 1.780