ComfortDelGro - RHB Invest 2020-12-17: Strong Domestic Earnings Recovery Story; Keep BUY


ComfortDelGro - Strong Domestic Earnings Recovery Story; Keep BUY

  • ComfortDelGro witnessed a q-o-q improvement in its public transport and taxi businesses during 3Q20 despite lower support from the Government. While a strong control on COVID-19 should lead to further normalisation of business operations in Singapore early 2021, the availability of a vaccine should support earnings recovery in its overseas markets during 2H21.
  • We remain confident of a strong profit recovery in 2021 and believe current valuation remains compelling. Maintain BUY and S$1.90 target price, 11% upside and ~5% 2021F yield.

Singapore public transport and taxi businesses to support earnings rebound.

  • Singapore accounted for 58% of revenue and 66% of operating profit for ComfortDelGro (SGX:C52) in 2019. We believe that sequential improvement in the company’s Singapore earnings will continue as the Government gradually re-opens the economy. Its bus operating frequencies should gradually revert to pre COVID-19 levels and ridership for its rail business should continue to witness sequential improvement over the next few quarters.
  • Recent exit of the smallest taxi operator and potential merger between Grab and Gojek should lead to lower competitive intensity in Singapore’s taxi business, which will be positive for ComfortDelGro’s taxi business.

Overseas business to see gradual revival in earnings as well.

  • While we see near-term earnings headwinds from the recently announced lockdown in the UK, we believe that the situation should start improving by mid-next year. Significant improvement in its UK and Australian public transport and taxi businesses should be visible once the COVID-19 vaccine becomes available during 2H21.
  • In 2019, the UK and Australia accounted for 10% and 19% of ComfortDelGro’s operating profit.

Expecting strong earnings growth in 2021.

  • We maintain that gradual normalisation of business activities in Singapore and ComfortDelGro’s key overseas markets (ie the UK and Australia) should translate into higher earnings for its public transport and taxi businesses in 2021.
  • While full recovery to pre-COVID-19 earnings could take more than two years, we expect ComfortDelGro to deliver a strong rebound in earnings next year.

Compelling valuation.

Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-12-17
SGX Stock Analyst Report BUY MAINTAIN BUY 1.900 SAME 1.900