ComfortDelGro - CGS-CIMB Research 2021-06-29: Stay On The Ride


ComfortDelGro - Stay On The Ride

  • We hosted ComfortDelGro’s management for a virtual non-deal roadshow on 28 Jun to discuss the company’s latest operational updates and future growth plans.
  • Tighter mobility restrictions in Singapore since May have curtailed ridership, but we see progressive recovery in 2H21F as vaccination rates ramp up.
  • ComfortDelGro remains committed to growing its presence abroad via organic (tenders) and inorganic opportunities (M&A).

Re-tightening of mobility restrictions in SG a near-term dampener

  • The reversion to Phase 2 (Heightened Alert) in Singapore has negatively impacted social mobility – rail ridership fell to ~50% of pre-COVID-19 levels in May, and ComfortDelGro (SGX:C52) reintroduced higher taxi rental rebates of 50% for the period (lowered subsequently to 35% in Jul) to support taxi drivers’ earnings. Easing of restrictions to-date has been gradual, but with vaccination rates in Singapore expected to trend higher (government expects two-thirds of the population having received their first dose by early-Jul, and be fully vaccinated by early- Aug), we expect a clearer path towards a new normal by 2H21F.
  • We view the recent re-tightening of measures as a near-term dampener, and hence lower our FY21F earnings forecast for ComfortDelGro by 19.1%. Our FY22-23F earnings forecast remain intact, with minor tweaks of 0.1-1.2%.

Australian portfolio ready for value unlocking

  • On the strategic review of ComfortDelGro’s Australia assets announced in May, management said the key it does not plan to exit Australia.

On the lookout for growth opportunities

  • ComfortDelGro continues to actively bid for new excess cash unnecessarily, and shareholders should be rewarded if there are no major capital needs on the horizon.

What valuation can ComfortDelgro fetch?

  • 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 5.1x FY21F EV/EBITDA. See report attached below for case study details and further analysis.

Reiterate ADD with slightly lower target price

ONG Khang Chuen CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-06-29
SGX Stock Analyst Report ADD MAINTAIN ADD 1.80 DOWN 1.820