ComfortDelGro - CGS-CIMB Research 2021-08-13: Recovery Around The Corner

COMFORTDELGRO CORPORATION LTD (SGX:C52)

ComfortDelGro - Recovery Around The Corner

ComfortDelGro’s net profit fell 38% q-o-q to S$34.8m in 2Q21, in line with our expectations but below consensus. Interim dividend payout was reinstated.
We believe the worst is likely over. Social mobility is set to improve in 2H21 as Singapore reopens its economy after reaching a high vaccination rate.
Reiterate ADD on ComfortDelGro. Our target price remains at S$1.80.

Singapore’s reversion to Phase 2 (Heightened Alert) since mid-May 21 hurt ComfortDelGro (SGX:C52)’s 2Q21; net profit fell to S$34.8m (-38% q-o-q). 1H21 net profit of S$91m (1H20: net loss of S$7m) was in line at 55% of our full-year forecast, but below consensus.
Singapore operations saw lower profitability q-o-q on the back of lower social mobility and government grants tapering off, while overseas operations generally saw improvement in 2Q21. Taxi segment was the hardest hit, as ComfortDelGro offered substantial rental rebates to drivers throughout the 1.5 months of Heightened Alert.
With a profitable 1H21, ComfortDelGro resumed interim dividend payout with dividend of S$0.021 per share, implying a ~50% payout ratio.

With a high vaccination rate in Singapore, we expect continued easing in social distancing measures in the coming months to support ridership recovery. Singapore is currently on a four-stage roadmap to become a COVID-19-resilient nation. Under stage one (commenced 10 Aug 2021), dine-out restrictions were lifted, and up to 50% of employees can return to the workplace post-19 Aug 2021.
We forecast rail ridership to recover to 80% of pre-COVID-19 levels by end-2021F, and expect taxi rental rebates to be lowered further (currently 35%). Excluding government grants, we forecast ComfortDelGro to achieve an operating profit of S$98m in 2H21F (2H20: S$46m, 1H21: S$77m).

ComfortDelGro continues to actively bid for new tender packages in geographies that it currently operates in, as well as in new markets. ComfortDelGro prefers countries which have similar public transport operating frameworks as its existing geographies, i.e. where operators focus on providing efficient operations, while the government bears the capex burden.
ComfortDelGro is also on the lookout for M&A opportunities, given its strong net cash position of S$417m at end-1H21. The recent acquisition in July was an A$17.5m purchase of a bus operator in Queensland, Australia that operates regional and school buses.

We reiterate our ADD call, as we believe the worse is over for ComfortDelGro. We cut our FY21-23F earnings per share forecast by 1.3-3.8% to factor in the two-week extension of Phase 2 (Heightened Alert in Jul), which hurt ridership. Our target price remains at S$1.80, based on 16.8x CY22F P/E (+0.5 standard deviation above ComfortDelGro’s 5-year historical average).
See
Besides the potential value unlocking of its Australia assets, other re-rating catalysts include positive updates on the Downtown Line financing framework reform.
Downside risks include slower ridership recovery.

ONG Khang Chuen CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-08-13

SGX Stock Analyst Report ADD MAINTAIN ADD 1.800 SAME 1.800