COMFORTDELGRO CORPORATION LTD (SGX:C52)
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
- 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
- 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
- Reiterate ADD as we believe the worst is over for ComfortDelGro, and expect earnings improvement in FY21F on the back of ridership recovery. While we make no changes to our earnings forecasts, our target price is raised to S$1.82, now pegged to 16.8x CY22F P/E (+0.5 s.d. above ComfortDelGro’s 5-year historical average), as we pencil in the possibility of DTL’s financing framework reform.
- See ComfortDelGro Share Price; ComfortDelGro Target Price; ComfortDelGro Analyst Reports; ComfortDelGro Dividend History; ComfortDelGro Announcements; ComfortDelGro Latest News.
- Other potential catalysts include earnings-accretive M&As.
- Downside risks include slower very and another major resurgence of COVID-19 in markets ComfortDelGro operates in.
ONG Khang Chuen CFA
CGS-CIMB Research
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Darren ONG
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-03-25
SGX Stock
Analyst Report
1.82
UP
1.700
