ComfortDelGro - RHB Invest 2022-08-26: To Benefit From Expected Rise In Tourism; BUY


ComfortDelGro - To Benefit From Expected Rise In Tourism; BUY

  • Singapore has scrapped amongst the last of its COVID-19 curbs, allowing non-fully vaccinated visitors to enter the country without the need to serve quarantine, and removing the need for indoor masking at most venues. This, in addition to the upcoming F1 event, we believe, should result in higher tourist inflow into Singapore.
  • ComfortDelGro (SGX:C52)’s rail and taxi businesses should witness higher ridership and demand. We continue to remain upbeat on its earnings recovery over the upcoming quarters.
  • Keep BUY recommendation on ComfortDelGro with S$1.75 target price, 23% upside and ~3% yield.

Relaxation on international travel restrictions.

  • Singapore announced that effective 29 Aug, it will lift rules on indoor masking at most venues and will ease quarantine requirements for non-vaccinated travellers as the country scrapped amongst the last of its pandemic-era curbs as COVID-19 infections have dropped. Non-fully vaccinated visitors entering the country will not have to serve quarantine, but are required to test negative within two days before traveling to Singapore.
  • We expect this move to translate into higher tourist arrivals into Singapore, which is already gearing up for the upcoming F1 event. This should translate into
    1. an increase in rail transport ridership, and
    2. higher demand for taxis in Singapore.

Singapore rail ridership continues to improve.

  • SBS Transit (SGX:S61), the Singapore public transport subsidiary of ComfortDelGro, has registered m-o-m improvement in rail ridership has since Feb 2022. The ridership this July was ~50% higher than Jul 2021 and was ~60% higher than Jul 2020. The year-to-date rail ridership is only 25% below pre-pandemic levels in 2019.
  • This improvement in rail ridership, which we expect to sustain over the next few quarters, along with the transition of the Downtown Line (DTL) to New Rail Financing Framework version 2, should help offset some reduction in its bus service fees that will come in to effect from Sep 2022.

Strong demand for taxis creates an opportunity to revisit the rental rebate.

Key downside risks for ComfortDelGro

  • Exclusion of ComfortDelGro from the STI Index in the upcoming review,
  • extension of rental rebates to taxi drivers beyond Sep 2022,
  • continuing decline in its taxi fleet size,
  • lower Singapore bus revenue amidst amended contracts,
  • the UK witnessing a sharp decline in economic growth.

Shekhar Jaiswal RHB Securities Research | https://www.rhbgroup.com/ 2022-08-26
SGX Stock Analyst Report BUY MAINTAIN BUY 1.750 SAME 1.750