ComfortDelGro - Phillip Securities 2021-02-22: Back To Core Profitability

COMFORTDELGRO CORPORATION LTD (SGX:C52)

ComfortDelGro - Back To Core Profitability

ComfortDelGro (SGX:C52)'s 4Q20 PATMI is 40% below expectations due to lower-than-expected public transport revenue and earnings.
Q-o-q, 4Q20 EBIT swung from S$0.2mn loss in 3Q20 to S$29.7mn profit, excluding government relief. Taxis returned to profitability in 4Q20.
ComfortDelGro is emerging out of the pandemic with an even stronger balance sheet. Net cash of S$279mn was up from S$64mn in FY19.

Recovery is underway with economic reopening, rebound in fuel index and dialling back of taxi rebates. Maintain BUY and DCF target price of S$1.83 (WACC 7.7%).
Taxis to lead the rebound with lower rental relief. Public transport to lag as traffic volumes are still almost 30% below pre-pandemic levels. Our FY21e forecasts are relatively unchanged.

Q-o-q, ComfortDelGro's revenue increased S$69mn to S$885mn. EBIT swung back to a positive S$29.7mn from S$0.2mn losses in 3Q20, excluding government relief. The improvement came from taxi operations, which returned to a profit of S$9.7mn from 3Q20’s -S$7.2mn.

Operating cash flow in 4Q20 was S$143mn or an estimated S$100mn excluding government relief (4Q19: +S$206mn).
ComfortDelGro's net cash spiralled to S$279mn from S$64mn in FY19. FCF in FY20 was S$513mn, up from S$377mn in FY19.

Q-o-q, public transport revenue rose S$60mn to S$700.5mn, and EBIT declined from q-o-q from S$8mn to S$1.6mn, excluding government relief. Profitability was worse than other smaller divisions in the group such as engineering and inspection.
SBS repairs and maintenance costs rose around 10% y-o-y in 2H20. Money was spent on the refurbishment of ageing trains and the bus fleet, on top of the frequent cleaning of buses and trains.

ComfortDelGro's FY20 final dividend was S$0.0143, an 85% plunge from the S$0.0979 paid in FY19. There was no interim dividend in 1H20, unlike 1H19’s S$0.045.
Payout ratio was 50% in FY20, down from 80% in FY19.

ComfortDelGro would have been in a net loss in FY20 without government relief of S$169.3mn. Nevertheless, FY21 marks a recovery year, supported by economic reopening, higher fuel indexation for buses and lower tax rebates.

Since the pandemic outbreak on 23 January 2020 in Singapore, Comfort’s share price is down 28%, from S$2.20 to S$1.58.
The path to its earnings rebound is clear. It will be led by taxis. Rental waivers Comfort dished out in 2020 amounted to S$116mn, according to our estimate. Waivers planned in 1Q21 could amount to around S$13mn. If taxi takings continue to improve, these waiver can end in 1Q21.
The longer-term challenge for its taxi business is a continuous decline in its fleet size. ComfortDelGro’s fleet was down 11.7% in 2020, from 10,700 to 9,444. The pivot overseas for growth should help to compensate for this.
Another initiative that should help is the conversion of its taxi fleet from diesel to hybrid by 2023. About 60% has been converted. Hybrid taxis require less maintenance - due to fewer moving parts - and command higher rentals as drivers benefit from higher flag-down meter rates and fuel efficiency.

Near term, rail operations could remain in the doldrums amid rising costs of maintaining an old fleet. The latest data from January suggests rail passenger traffic was down 29% y-o-y in the month. Continued working from home remains a major impediment to a recovery to pre-pandemic levels.

Australia is its largest overseas profit contributor, where we expect a recovery in 2021. ComfortDelGro has invested S$1.24bn in Australia, only slightly below Singapore’s S$1.36bn.
Revenue in Australia dipped only 3% in 2020 to S$608mn, as scheduled bus services were minimally disrupted. Earnings, though, halved by 54% to S$35.7mn due to soft taxi revenue, impairment charges for taxis and higher wage costs. Government relief was a minimal S$2.1mn.

Our FY21e revenue and PATMI forecasts for ComfortDelGro are relatively unchanged. DCF target price is maintained at S$1.83. ComfortDelGro is our preferred transport proxy for a normalization of economies as lockdowns ease.
See ComfortDelGro Share Price; ComfortDelGro Target Price; ComfortDelGro Analyst Reports; ComfortDelGro Dividend History; ComfortDelGro Announcements; ComfortDelGro Latest News.

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2021-02-22

SGX Stock Analyst Report BUY MAINTAIN BUY 1.830 SAME 1.830