ComfortDelGro - UOB Kay Hian 2021-07-15: Catching A Ride And Awaiting An Aussie Bounce


ComfortDelGro - Catching A Ride And Awaiting An Aussie Bounce

  • ComfortDelGro remains in recovery mode, as vaccination rates ramp up in 2H21. Barring another round of tightened measures, the effects of Phase 2 (Heightened Alert) should be short-term in nature, with a likely recovery in land transport activities.
  • ComfortDelGro’s Australian presence is vital, as it seeks to unlock value from its assets, while potentially growing through new contract tenders.
  • Maintain BUY with a slightly lower target price of S$1.90.

Reopening allows for domestic ridership to trend up.

  • According to the Ministry of Health, the easing of COVID-19 measures have taken place from 12 Jul 21, with groups of five being allowed for dine-in services, while social gatherings at offices are also allowable at the prevailing group size. The authorities noted that 50% of the population are expected to be fully vaccinated by end-Jul 21.
  • Public transport ridership hit a low in the Phase 2 (Heightened Alert) period but has since trended up marginally. We opine that ridership levels have dropped by a smaller extent compared to the circuit breaker period in 2Q20.
  • According to the Google Mobility Report, movement trends to public transit areas dipped 50% below pre-COVID-19 levels at the end of May but are currently at 35-40% below pre-COVID-19 levels. This will affect the group’s rail fare revenue for 2Q21.

Restructuring for a new normal.

  • ComfortDelGro (SGX:C52) is progressing with its restructuring efforts. The group recently reorganised its taxi, private bus, New South Wales, Melbourne and the Northern Territory. Recall that the group is exploring various options to unlock value of its assets in Australia, including a partial sale of assets or an IPO. Recent COVID-19 restrictions have impacted ridership though we understand that service levels have remained steady. Growth opportunities can take the form of further acquisitions or new bus tender contracts. ComfortDelGro's total investment in Australia is S$1.17b to date.

Assessing an upcoming Australian bus contract.

  • As part of the government’s efforts to privatise its remaining bus routes, an upcoming bus tender by the Transport For New South Wales is expected to take place in the coming months. This is for Region 9 11% of public bus ridership market share in New South Wales.

Lower 2021 earnings forecast for ComfortDelGro by 13%, 2022-23 earnings are unchanged.

  • Given the lower rail ridership and taxi rental rebates seen in 2Q21, we expect a drop off in the period and have lowered our earnings forecast for 2021. For 1H21, we estimate ComfortDelGro's core earnings to come in at S$95m (+283% y-o-y) up from a low base in 1H20. On a q-o-q basis, we expect to see a 33% drop in earnings for 2Q21.
  • A pick-up in 2H21 in which a rental rebates for taxis.

ComfortDelgro - 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/ 2021-07-20
SGX Stock Analyst Report BUY MAINTAIN BUY 1.90 DOWN 1.950