ComfortDelGro - UOB Kay Hian 2021-03-11: Switching To The Green Lane

COMFORTDELGRO CORPORATION LTD (SGX:C52) | SGinvestors.io COMFORTDELGRO CORPORATION LTD (SGX:C52)

ComfortDelGro - Switching To The Green Lane

  • While incentives and developments for EV adoption have gained momentum, there are still teething issues in the transition to EV taxis, though a longer-term positive could materialise from lower charging costs. On a near-term basis, other government initiatives appear to be beneficial for ComfortDelGro (SGX:C52), including the potential change in the financing framework for the Downtown Line.
  • Maintain BUY on ComfortDelGro with a higher target price of S$1.85.



WHAT’S NEW


Pushing the green agenda.

  • Electric vehicles (EV) were a key topic at last week’s Ministry of Transport Committee Debate as well as Budget 2021, with a slew of measures to not only encourage the adoption of EVs but also introduce disincentives for the use of internal combustion engine (ICE) vehicles.
  • To recap, the government intends to accelerate the development of charging infrastructure, aiming to deploy 60,000 charging points at public carparks and private premises by 2030, a more ambitious target than before. Furthermore, the Additional Registration Fee (ARF) floor will be lowered to zero for electric cars, from Jan 22 to Dec 23, while the road tax treatment for electric cars will be revised, in a bid to provide better support for EV adoption.

Still in its infancy...

  • Currently, ComfortDelGro has a small proportion of EVs in its taxi fleet, numbering less than 10. The group had started with the trial of Hyundai Kona electric taxis which are able to travel up to 350km when fully charged. ComfortDelGro also has preliminary infrastructure in place, with the 100kW Delta Fast Charger.

…though authorities aggressively laying the path for adoption.

  • In addition to the ARF changes, there are also increased rebates for EVs under the enhanced Vehicular Emissions Scheme (VES) on top of the Electric Vehicle Early Adoption Incentive announced in Nov 20. According to the National Environment Agency (NEA), buyers could enjoy combined cost savings of up to S$57,000 on the purchase of a new EV taxi.
  • We note that the retail price range for the Hyundai Ioniq Electric is at approximately S$160,000 while the Ioniq Hybrid costs around S$120,000. The new ARF floor will allow mass market EVs with lower open-market values (OMV), such as the Hyunda Ioniq Electric to benefit fully from existing tax breaks and incentives.

Petrol duty rates also increased, further discouraging ICE vehicles.

  • The short-term impact appears muted, given that there are measures in place for taxi drivers, including a petrol duty rebate of S$360 as well as a one-year road tax rebate of 15%, which could offset about one year of petrol duty increases. However, over the longer run, this could further shift the transition to EV taxis. The government highlighted that the restructured diesel tax initiatives in recent years have effectively reduced the proportion of diesel taxis by half, from 2015-20.
  • ComfortDelGro currently has a diesel/hybrid ratio of 40/60 in its fleet.


STOCK IMPACT


Some concerns over adoption.

  • While the incentives appear to be attractive, there are still concerns of the effects from COVID-19 and the possibility of unutilised fleet when considering the transition to EV taxis. The group reiterated a conservative stance on capex in its recent results. Charging of taxis could also be a concern if the downtime becomes an opportunity cost for drivers.

Benefits of lower charging costs.

  • A fully charged electric Ioniq taxi travels more than 200km, but the cost of charging it fully is only about a third of the cost of diesel for the same distance. This could prove to be better for rental rates as seen from the transition to hybrid taxis.

Fastest mover at the wheel?

  • With the recent exit of HDT taxis, comprising almost 100 EV taxis, no taxi company has a significant stake in EV taxis. ComfortDelGro remains the largest taxi company by fleet size with pilot initiatives for EV taxis.

Other regulations appear beneficial.

  • Two other government initiatives also appear to be positive for ComfortDelGro. These are:
    1. Extended JSS scheme for land transport services will be an additional three months for 10%, providing additional wage support,
    2. A potential shift in the financing framework for the Downtown Line (DTL).
  • The DTL is on the New Rail Financing Framework (NRFF) version one, in which a fixed fee is paid by the operator utilising rail assets while collecting fare revenue. Other NRFF versions incorporate adjustments (such as version two, which reduces commercial volatility by sharing profits/losses, while version three is a contracting model). A shift to version two/three of the NRFF could reduce the operating loss incurred by the operation of the DTL.


EARNINGS REVISION/RISK


Raise 2021 earnings forecast by 3%.

  • We increase our net profit estimates of ComfortDelGro slightly on the back of the extended JSS wage support. We have not factored in any changes for the DTL financing but estimate that losses could amount to around S$30m on a pre-COVID-19 basis which is 13% of our 2021 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.





Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-03-11
SGX Stock Analyst Report BUY MAINTAIN BUY 1.85 UP 1.780



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