SINGAPORE (Oct 5): Maybank KimEng is remaining firm on its latest upgrade to a “buy” call on ComfortDelGro (CDG) with unchanged price target of $2.40 or 16 times FY18 forecast earnings.
In a Thursday report, analyst John Cheong says his “buy” recommendation remains unaffected by the industry talk regardless of whether it is true or not.
See: ComfortDelGro upgraded on return to comfort zone
This is because the call is premised on expectations of CDG seeing an earnings uplift from its rail and bus units, to be supplemented by an ex-taxi free cashflow yield of 7.8%.
Recent news emerged that Uber is being investigated by the Corrupt Practices Investigation Bureau (CPIB) for its vehicle-procurement practices under the firm’s majority-owned car rental company, Lion City Rentals (LCR).
See: Uber said to be under CPIB probe over majority-owned Lion City Rentals
The analyst believes implications of Uber’s alleged investigation are mixed as the anticipated tie-up has yet to be confirmed.
In his view, CDG has the latitude to avoid jeopardising its operations with any contingent liabilities.
While Uber’s “keenness to sell LCR” -- which supports talks that an investigation is indeed ongoing -- could strengthen CDG’s negotiating hands, the news could also delay any possible deal which could happen between the two companies, he adds.
Nevertheless, if a tie-up between CDG and Uber materialise, Cheong sees enhanced returns for Comfort’s taxi operations in the longer term although LCR’s ROIC could be at low single digit, below Comfort’s 8.5%.
"We see savings from fixed-cost synergies, better fleet management to improve utilisation rate and improved rental rates could enhance long-term return,” adds the analyst.
“Potential synergies between LCR and Comfort could stem from Comfort’s larger fleet management and cost savings in vehicle maintenance & bulk purchases, and possibly a leaner back office."
As at 10am, shares in CDG are trading flat at $2 or 1.6 times FY18 book.
