ComfortDelGro - UOB Kay Hian 2021-02-16: 2020 In Line; Taxis Turn The Corner


ComfortDelGro - 2020 In Line; Taxis Turn The Corner

  • ComfortDelGro reported a net profit of S$46m in 4Q20 (+18% q-o-q). Full-year adjusted earnings of S$110m makes up 97% of our estimates, in line with expectations.
  • Public transport services continued its recovery with slightly better ridership in 4Q20. A positive was the return to operating profitability for the taxi segment, though a small amount of rental waivers remains in place.
  • ComfortDelGro trades at -1SD to its mean P/E and -2SD to its mean P/B.
  • Maintain BUY with an unchanged target price of S$1.78.

ComfortDelGro's 4Q20 results in line with expectations.

  • ComfortDelGro (SGX:C52) reported 4Q20 adjusted net profit of S$46.1m (-39% y-o-y, +18% q-o-q), a continued improvement on a q-o-q basis. While headline profit of S$61.8m was down (-77% y-o-y), full-year earnings excluding impairments, came in at 97% of our full-year estimates, in line with expectations.
  • ComfortDelGro's FY20 final dividend was cut to 1.43 cents (2019: 5.29 cents). Full-year payout ratio was 50% of headline profits (FY19: 80%).
  • On a q-o-q basis, revenue was up (+8% y-o-y) while core operating margin was up to 8.2%. (+0.7ppt y-o-y).

Public Transport: Gradual improvement.

  • Revenue increased to S$700m (-6% y-o-y, +9% q-o-q) in 4Q20 as management noted that ridership levels are at 65-70% of pre- COVID-19 levels in 4Q20. For 2020, daily ridership for the Downtown Line and North-East Line were down 46% and 41% y-o-y. Transport activities will likely continue its gradual increment, as work from home measures continue to be in place.
  • ComfortDelGro’s Australia public bus business, which forms approximately 90% of the bus revenue in Australia saw minimal impact to service levels.
  • On the UK front, discretionary coach bus services remain disrupted.

Taxi: Return to operating profitability.

  • Taxi revenue was S$116m (-31% y-o-y, +6% q-o-q). There was no impairment provision in the quarter for the hard-hit segment, which is a positive. Management noted operating costs were optimised, which had brought about operating profitability in a quarter, a reversal from 3Q20.
  • We note that excluding COVID-19 relief, operating profits would have been approximately S$9.7m in 4Q20. The shift towards hybrid taxis has also aided taxi margins.
  • Separately, ComfortDelGro has also recently introduced a trial of its ride-hailing service for private hire cars.

UK: Down but not out.

  • The UK has seen a second national lockdown, affecting ridership levels. However, we note that the pace of COVID-19 vaccinations in the UK is faster than most nations, with almost 18% of the population receiving the first dose of the COVID-19 vaccination as early Feb 21.
  • According to the Department of Health and Social Care, the Phase 2 of the vaccination roll-out (for ages 50-69) will take place by mid-April, while Phase 3 (all remaining adults) will be by the autumn. A roadmap for lockdown easing measures could include reopening of schools in early Mar, followed by non-essential shops and the hospitality sector, which could be a boost for discretionary coach services.

Budget may offer some further reprieve.

  • Ridership levels continue to be affected by COVID-19 measures, including work from home measures. A targeted budget package may extend some relief to transport operators.

Financials stable.

  • ComfortDelGro is in a net cash position of S$190m, with gross cash of S$742m. ComfortDelGro also has available facilities of approximately S$950m. M&As remain a possibility though the group is cautious about the further impact from COVID-19.

Earnings revision

  • No changes to earnings forecast.

Valuation & Recommendation

Share price catalyst

  • Easing of stay-home measures.
  • Bus tender contract wins.
  • Earnings-accretive overseas acquisitions.
  • Regulatory changes in public transport.

Adrian LOH UOB Kay Hian Research | Singapore Research Team UOB Kay Hian | https://research.uobkayhian.com/ 2021-02-16
SGX Stock Analyst Report BUY MAINTAIN BUY 1.780 SAME 1.780