ComfortDelGro - CGS-CIMB Research 2021-03-25: Back To The Office


ComfortDelGro - Back To The Office

  • We believe Singapore government’s latest relaxation of work arrangement policies can support further ridership recovery in coming months.
  • Downtown Line (DTL) financing framework is another key potential catalyst for ComfortDelGro; we see 7.2%-8.6% earnings per share upside if fixed licence fee for the rail line is waived.
  • Reiterate ADD on ComfortDelGro with a higher target price of S$1.82, based on higher CY22F P/E of 16.8x (0.5 standard deviation above historical average).

Further relaxation of workplace restrictions

  • From 5 Apr onwards, Singapore will shift from working-from-home as a default to a more “flexible and hybrid” way of working. Split team arrangements will no longer be mandatory, and up to 75% (currently 50%) of the employees can now be at the workplace at any one time.
  • As of Feb 21, average rail ridership remains 28% below 2019’s levels; we believe the latest policy change on workplace arrangement could support further ridership recovery in coming months.
  • We continue to expect 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 (SGX:C52)’s core net profit recovery (forecast +92.5% y-o-y) in FY21F.

Downtown Line (DTL) financing framework review another potential catalyst

  • We also see a potential catalyst from Downtown Line (DTL) financing framework review this year, where we see 7.2%-8.6% upside to ComfortDelGro’s FY21-23F net profit forecast should the fixed licence fee be waived. DTL operations have consistently been loss-making (FY19: S$38.5m net loss), and the losses further widened in 2020 due to COVID-19. As COVID-19 is likely to bring structural changes to the flexibility of work arrangements, we believe there is a need for the government to review the rail financing framework.
  • We see a potential two-step reform, where
    1. tweaks to make DTL’s financing framework consistent with other rail lines, which is a low hanging fruit, could be executed this year to help stem the bleed for ComfortDelGro; while
    2. a switch to a cost-plus model for operators is more likely to happen in the medium-term given the added complexity.

Reiterate ADD on ComfortDelGro with a higher target price of S$1.82

ONG Khang Chuen CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-03-25
SGX Stock Analyst Report ADD MAINTAIN ADD 1.82 UP 1.700