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

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COMFORTDELGRO CORPORATION LTD (SGX:C52)

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

• Reiterate ADD call on ComfortDelGro. With the earnings cut, we lower our target price for ComfortDelGro slightly, still pegged to 16.8x CY22F P/E (+0.5 standard deviation above ComfortDelGro’s 5-year historical average).
• See
  • ComfortDelGro's Share Price,
  • ComfortDelGro's Target Price,
  • ComfortDelGro's Analyst Reports,
  • ComfortDelGro's Dividend History,
  • ComfortDelGro's Announcements,
  • ComfortDelGro's Latest News.
• Besides the potential value unlocking move, other re-rating catalysts include positive updates on the Downtown Line financing framework reform, and reinstatement of interim dividends in Aug.
• Downside risks include slower ridership recovery.
• See complete analysis in report attached below.

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