ComfortDelGro - CGS-CIMB Research 2021-02-15: On Road To Recovery But Volatility Remains

COMFORTDELGRO CORPORATION LTD (SGX:C52)

ComfortDelGro - On Road To Recovery But Volatility Remains

ComfortDelGro saw continued sequential earnings recovery in 4Q with net profit of S$46m. FY20 net profit of S$62m was slightly below our forecast of S$67m.
Ridership recovery in FY21F could be supported by further relaxation in social-distancing measures, with a ramp-up of vaccine rollout in Singapore.
We also expect ComfortDelGro to resume higher dividend payout in FY21F.

ComfortDelGro (SGX:C52) saw continued sequential earnings recovery in 4Q with core net profit of S$46m (+18% q-o-q; -39% y-o-y). All business segments returned to profitability at the operating level, even when government grants were excluded. Results were slightly below expectations, with FY20 reported net profit of S$62m compared to our forecast of S$67m.
As ComfortDelGro’s FY20 profitability was mainly supported by government grants, dividend payout ratio was lowered to 50% (FY19: 80%). ComfortDelGro's final dividend of 1.43 cents implies a yield of 0.9%. See ComfortDelGro Dividend History.

With community cases of COVID-19 remaining low and a further ramp-up of the vaccine rollout in Singapore, we expect further relaxation in social-distancing measures in the coming months, which could support a recovery in ridership.
We forecast rail ridership to recover to 90% of pre-COVID-19 levels by end-2021F, as we think that amidst a new normal, there will be less commuting due to increased flexibility in work-from-home arrangements, which may not necessitate daily travel to work.
Further paring of taxi rebates in coming months should also help support ComfortDelGro’s core net profit recovery (+92.5% y-o-y) in FY21F.

Despite the weak operating environment in FY20, ComfortDelGro returned to a net cash position of S$190m (S$0.09 per share) as of end-FY20, leveraging its strong operating cash flow generation. With capex expected to remain low in FY21F (slower pace of taxi fleet refresh) and management likely to adopt a cautious approach on M&A, we believe ComfortDelGro’s stronger financial position will allow it to resume a higher dividend payout in FY21F, along with earnings recovery.
Assuming ComfortDelGro returns to 80% dividend payout ratio previously adopted in FY19, we see attractive dividend yield of 5.0-5.8% over the next 3 years.

Reiterate ADD as we believe the worst is over for ComfortDelGro, and expect earnings improvement in FY21F on the back of ridership recovery. We cut our ComfortDelGro's FY21-22 earnings forecast by 4.0-8.4% as we lower our assumption on taxi fleet population. Our target price remains unchanged at S$1.70 as we roll over our valuation to end-FY22F, still pegged to ComfortDelGro’s 5-year historical average P/E of 15.6x.
See ComfortDelGro Share Price; ComfortDelGro Target Price; ComfortDelGro Analyst Reports; ComfortDelGro Dividend History; ComfortDelGro Announcements; ComfortDelGro Latest News.
Potential re-rating catalysts include rail financing policy reform and earnings-accretive M&As.
Downside risks include slower ridership recovery and another major resurgence of COVID-19 in markets ComfortDelGro operates in.
See also report: SBS Transit - CGS-CIMB Research 2021-02-09: On The Road To New Normal.

ONG Khang Chuen CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-15

SGX Stock Analyst Report ADD MAINTAIN ADD 1.700 SAME 1.700