ComfortDelGro - Maybank Kim Eng 2021-06-21: Proxy To Domestic Transport Recovery


ComfortDelGro - Proxy To Domestic Transport Recovery

Investment case: proxy to domestic transport recovery

  • ComfortDelGro (SGX:C52) is one of the world’s largest land-transport conglomerate covering businesses such as public buses, railway, taxis, automotive engineering, vehicle inspection and driving centres across Singapore, Australia, the UK, China, Vietnam and Malaysia.
  • ComfortDelGro is well-positioned to capture positive operating leverage, driven by domestic transport recovery post-Covid. This is supported by wider vaccines deployment, in which ~ 34% of the SG total population are vaccinated currently, while that of Australia and UK are standing at 2.7% and 45%.

Catalysts: restructuring of Australian assets, recovery in ridership and review of DTL framework

  • ComfortDelGro is exploring various options to unlock value of its Australian assets – in which it is one of the largest privately owned bus operators. The value unlocking exercise could take a variety of forms, including an IPO or a partial sale. There is potential for special dividends through the restructuring exercise given its strong net cash position of S$339m.
  • Meanwhile, the transport minister will reassess the financing framework for the loss-making Downtown Line (DTL). All things equal, assuming DTL achieves breakeven through the impending framework revision, this could potentially add S$0.04 (or 49%) to ComfortDelGro’s FY21E EPS to S$0.13.

Valuations: undemanding in a normalised scenario

  • ComfortDelGro's share price has corrected ~ 30% since start of 2020 due to a sharp drop in rail ridership and rental waivers given to taxi drivers. We see the low risk of nationwide lockdown given that new Covid cases has been hovering around two digits due to the wider vaccine deployment, better contact tracing and swabbing capabilities to keep the numbers under control.
  • Valuation wise, the stock is trading at 15x FY22 EPS, which is below its historical mean of 18x. Our target price for ComfortDelGro is based on DCF valuation (WACC: 8.2%, LTG: 1%).
  • Restructuring exercise, recovery in ridership and positive outcome from revising DTL framework are catalysts to close the valuation gap.

Risks: prolonged social distancing measures

Kareen Chan Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-06-21
SGX Stock Analyst Report BUY MAINTAIN BUY 1.880 SAME 1.880