ComfortDelGro - UOB Kay Hian 2022-06-27: Living With COVID-19


ComfortDelGro - Living With COVID-19

  • As Singapore moves on from the COVID-19 pandemic, we expect ridership to improve. Relaxation of COVID-19 measures has improved rail ridership while taxi passenger demand has surged. Singapore’s taxi industry is facing worsening demand-supply imbalance and stiff competition from ride-hailing competitors.
  • ComfortDelGro has also won a new public bus contract in Australia, expanding its footprint down under.
  • Maintain BUY with a slightly higher target price.

Transition to endemic living.

  • From 26 Apr 22, Singapore’s authorities announced the easing of most of its social distancing measures. Some of the relaxed measures include the removal of group size limits, safe distancing no longer being mandatory and 100% of workers are now allowed to return to their respective workplaces.
  • Furthermore, Singapore’s international borders have fully reopened, welcoming back tourists. Backed by a population that is almost fully vaccinated, these favourable tailwinds would help underpin ComfortDelGro (SGX:C52)s public transport and taxi earnings as mobility improves.

Improving ridership.

  • SBS Transit (SGX:S61) experienced a strong recovery in rail ridership for May 22 (+56.8% y-o-y, +4.6% m-o-m), forming 81% of pre-pandemic levels (May 19). We reckon that this is due to more office workers returning to office spaces and the removal of dine-in group size limits.
  • According to Land Transport Authority (LTA), passenger demand for point to point trips has gradually improved, albeit seeing slight dips due to COVID-19 outbreaks. Overall, we expect rail and taxi ridership to reach near pre-pandemic levels by 1Q23.

Expanded bus services down under.

  • ComfortDelgro Corporation Australia has been awarded a six-year contract to solely operate public bus services in Northern Territory Australia. The contract areas cover a significant part of Northern Territory’s network which includes Darwin and Palmerston, with 170 buses operating across 180 bus routes.
  • Expected to commence on 1 Jul 22, the contract is estimated to be worth around A$220m. Based on our estimates, this new bus contract would boost our 2022-24 PATMI estimates for ComfortDelGro by 2-3%.

Domestic taxi: Demand-supply imbalance.

  • Singapore is facing a shortage of taxi drivers to meet the surging demand. According to the LTA, the number of taxis and taxi driver’s further to retain/attract taxi drivers, dragging down profitability.

Supply to remain tight.

  • Stiff competition from other ride-hailing operators has also caused many taxi drivers to make the jump. Through our channel checks, drivers in Singapore prefer ComfortDelGro’s ride-hailing competitors such as Grab and Go-Jek as they have lower daily rental rates and greater incentives, despite ComfortDelGro having the lowest commission rate. Grab’s and Go-Jek’s cheaper daily rental rates make it easier and quicker for drivers to break even, a vital factor most drivers consider.
  • A positive for ComfortDelGro's taxi drivers is that they are allowed to pick up passengers via street hail while the rest cannot. However, as more passengers shift to online bookings, this advantage may be mitigated in the long run.

ComfortDelGro - Earnings forecast & recommendation

Llelleythan Tan UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-06-27
SGX Stock Analyst Report BUY MAINTAIN BUY 1.660 SAME 1.660