ComfortDelGro - CGS-CIMB Research 2021-08-16: Seeks Asx Listing For Australian Subsidiary

COMFORTDELGRO CORPORATION LTD (SGX:C52)

ComfortDelGro - Seeks Asx Listing For Australian Subsidiary

ComfortDelGro announced that it is pursuing an IPO on the Australian Securities Exchange (ASX) for its Australian subsidiary. Proposed timeline is 4Q21F.
Closest comparison is Sealink Travel’s acquisition of Transit Systems in Oct 2019 at 8.2x EV/EBITDA. Sealink is trading at 11.4x CY22F EV/EBITDA.
Should ComfortDelGro’s Australian asset be valued independently at 6x/8x/10x CY22F EV/EBITDA, our target price could be lifted to S$1.83/S$1.99/S$2.15 respectively.

ComfortDelGro announced that it is pursuing an IPO on the Australian Securities Exchange (ASX) for its wholly-owned subsidiary which holds its Australian assets.
The IPO is planned for 4Q21F, but the structure and terms of offering are subject to prevailing market conditions and relevant approvals.

To date, ComfortDelGro has invested a total of S$1.17bn in Australia. ComfortDelGro’s Australia bus business had a total of 2,606 buses across Sydney, Melbourne, Darwin and Queensland as at end-FY20; 84% of its fleet operates on contract routes.
ComfortDelGro also had 202 non-emergency patient transport vehicles and 397 taxis in Australia as at end-FY20.
Despite the bushfires and COVID-19, Australia was the best performing overseas location for the ComfortDelGro group in 2020. In 1H21, ComfortDelGro’s Australian business generated S$37.9m operating profit (+392% y-o-y), almost back to 1H19’s levels (S$38.4m).
Management said key reasons for the strategic review were:
1. the assets have matured, reaching a scale that could allow value unlocking, and
2. Australian operations demonstrated strong resilience despite the pandemic.
3. ComfortDelGro remains committed to grow its operations in Australia.

Our analysis of past Australian transport services’ M&A transactions and ASX-listed peers point towards a valuation range of 6.8x-13.1x EV/EBITDA, a premium compared to ComfortDelGro’s current valuation of 4.3x FY21 EV/EBITDA.
We believe the closest comparable is Sealink Travel’s (SLK AU) acquisition of Transit Systems Group in Oct 2019, with an implied transaction value of ~8.2x EV/FY19A pro-forma normalised EBITDA. Sealink currently trades at 11.4x CY22F EV/EBITDA, based on Bloomberg consensus estimates.
Should ComfortDelGro’s Australian asset be valued independently at 6x/8x/10x CY22F EV/EBITDA, our target price could be lifted to S$1.83/S$1.99/S$2.15 respectively.

We reiterate our ADD call, as we believe the worst is over for ComfortDelGro with the reopening of the economy in Singapore. 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 2021-08-16

SGX Stock Analyst Report ADD MAINTAIN ADD 1.800 SAME 1.800