ComfortDelGro - Maybank Kim Eng 2021-03-09: Shaping Up


ComfortDelGro - Shaping Up

Reviewing Downtown Line financing framework

  • The transport minister will review the financing framework for the loss-making Downtown Line (DTL), which is operated by 75%-owned SBS Transit (SGX:S61). This is a positive development for ComfortDelGro (SGX:C52) as its rail business is suffering losses due to lower-than-forecasted DTL ridership.
  • We think the Thomson-East Coast Line’s current arrangement of cost-plus model would be the most ideal scenario for ComfortDelGro.
  • Overall, maintain BUY on ComfortDelGro with a DCF-based target price (WACC: 8.2%, LTG: 1%) of S$1.88.
  • We continue to like ComfortDelGro as it is poised to enjoy operating leverage as domestic transport recovers. The stock is trading at 1.3x FY21E P/B, which is 2 standard deviation below historical mean.

Government to reassess licensing fee

  • Transport Minister Ong Ye Kung noted that SBS Transit bears significant commercial risks under New Rail Financing Framework (NRFF) version 1, in which the operator is paying a fixed licensing fee of S$750m over a 15-year period starting in 2019. DTL ridership has been weaker than projected, while operating costs have increased over time, resulting in DTL being loss-making.
  • The transport minister acknowledged that it is not ideal for a public transport business to be unstable and will review the current framework of DTL.

Positive development under both scenarios

  • The North-South, East-West, Circle and North-East lines are under NRFF version 2 – the government has dropped its fixed fee financing framework, capped operators’ high profits but will cushion big losses to smooth out commercial volatility.
  • Meanwhile, the Thomson-East Coast Line (TEL) is on NRFF version 3, with the government bearing all revenue risk and granting a fee for the operator to run the line in the initial period when ridership is still unstable.
  • That said, TEL operator SMRT would be placed under NRFF version 2 once ridership stabilises. Nonetheless, transition to either NRFF 2 or 3 would still bode well for ComfortDelGro considering it’s making a loss.

New Rail Financing Framework (NRFF) version 3: A more likely scenario for ComfortDelGro

Kareen Chan Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-03-09
SGX Stock Analyst Report BUY MAINTAIN BUY 1.880 SAME 1.880