ComfortDelGro - CGS-CIMB Research 2021-05-13: Value Unlocking On The Cards?


ComfortDelGro - Value Unlocking On The Cards?

  • ComfortDelGro saw continued sequential earnings recovery in 1Q with net profit of S$56.2m (+22% q-o-q, +56% y-o-y). Results were in line with expectations.
  • ComfortDelGro announced that it is exploring options to unlock value for its Australian assets, including a partial sale or an initial public offering.
  • Outlook remains positive with a gradual resumption of activities. Reiterate ADD on ComfortDelGro and target price of S$1.82.

Solid 1Q21 results

  • ComfortDelGro (SGX:C52)’s 1Q21 net profit came in at S$56.2m (+22% q-o-q, +56% y-o-y), in line at 27%/28% of our/Bloomberg consensus FY21F. In general, most markets that ComfortDelGro operates in saw the pandemic largely under control and progressive relaxation of restrictions during the quarter.
  • Other than the UK, all geographies’ operating profit grew on a y-o-y basis during the quarter. That said, government grants continued to be the main help — ComfortDelGro received S$33.4m worth of relief during the quarter.

Key surprise – Potential value unlocking of Australia assets?

  • ComfortDelGro announced that it is exploring various options to unlock the value of its assets in Australia, including a partial sale of assets or an initial public offering. To date, ComfortDelGro has invested a total of S$1.17bn in Australia, and owns operations including
    1. scheduled and unscheduled buses,
    2. non-emergency patient transport services,
    3. taxis, and
    4. vehicle advertising.
  • Our analysis of past Australian transport services M&A transactions and ASX-listed peers point towards a valuation range of 6.9x-13.1x EV/EBITDA, a premium compared to ComfortDelGro’s current valuation of 4.7x FY21 EV/EBITDA. We agree that a separate listing can allow better appreciation of its Australia operations, but questions remain on:
    1. timing (will ComfortDelGro be able to obtain the best value when its operations are still in the midst of a recovery from the COVID-19 pandemic) and
    2. what comes next (even without the sale proceeds, ComfortDelGro already has a strong net cash position of S$340m, and generates healthy operating cash flow in excess of S$500m annually).

Outlook remains positive with gradual resumption of activities

  • While Singapore’s recent tightening of COVID-19 related restrictions is a dampener, we continue to see an overall improving business outlook for ComfortDelGro. Key markets that it operates in either have a strong proven track record of handling COVID-19 (Singapore, Australia, China) or is embarking on an aggressive vaccination programme (UK), which should support further resumption of economic activities and social mobility.
  • We continue to expect ComfortDelGro to record core net profit growth of 92.5% y-o-y to S$212m in FY21F.

Reiterate ADD and target price of S$1.82

ONG Khang Chuen CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-13
SGX Stock Analyst Report ADD MAINTAIN ADD 1.820 SAME 1.820