ComfortDelGro - Maybank Kim Eng 2021-01-11: Life In 2021


ComfortDelGro - Life In 2021

Recovery still in play; Maintain BUY with higher target price

  • We believe recovery in taxi and public transport ridership creates a favourable condition for ComfortDelGro (SGX:C52) in FY21. We maintain BUY on ComfortDelGro with higher DCF-based target price (WACC: 8.2%, LTG: 1%).
  • We increased ComfortDelGro's FY21 earnings forecast by 23% to account for operating leverage as public transport and taxis recover. ComfortDelGro offers exposure to domestic transport recovery, which should see a faster pace of turnaround compared to aviation.
  • Downside risks include further impairment of UK businesses due to the worsening COVID-19 situation.

Public transport: gradual recovery

  • We expect a sequential recovery in rail ridership in FY21 due to further easing of social-distancing and work-from-home measures, and as vaccines should be available. Meanwhile, we expect Bus Contracting Model (BCM) to remain stable as these are fixed contracts and COVID-19 is under control in Singapore and Australia.
  • A sharp drop in fuel prices in Jan- Apr 2020 has resulted lower BCM contract fees in 1H20. With fuel prices recovering since 2Q20, we expect BCM to contribute a more stable portion in FY21E. Thus, we have factored in 4.5% y-o-y revenue growth in public transport for FY21E, as we assume rail ridership will return to 75% of pre-COVID levels.

Taxis turn favourable: we can’t find a cab

  • Ridership saw the fastest pace of rebound in 3Q20 as riders prefer taxis/private hire cars (PHCs) to reduce social interaction. The momentum should continue to gather steam, and alternative data (the number of taxis at taxi stands during peak hours) suggests that taxi idling rate has decreased ~90% in the past 3 months.
  • Anecdotally, our conversations with taxis/Grab drivers also suggest that situation has improved vastly. Drivers have started choosing their calls and routes to maximise income. Meanwhile, the implementation of stricter point-to-point regulation for PHC firms, and potential merger of Grab and Gojek indicate less competition for ComfortDelGro.
  • Overall, we do not expect ComfortDelGro to provide substantial rental rebates to taxi drivers and forecast 30% y-o-y revenue growth this year.

ComfortDelGro's stock price may recover in stages

Kareen Chan Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-01-11
SGX Stock Analyst Report BUY MAINTAIN BUY 1.88 UP 1.760