SINGAPORE (May 15): Analysts believe the worst might be over for ComfortDelGro Corporation, on the back of its recent acquisitions and improving outlook for its taxi segment.
CDG saw its earnings fall 19.6% to $66.3 million for the 1Q ended March, even as revenue fell across all its divisions except the bus and rail segments.
The lower 1Q18 earnings was mainly attributable to the non-recurrence of $10.0 million in special dividends received from Cabcharge Australia in 1Q17, as well as higher operating costs.
See: ComfortDelGro posts 19.6% drop in 1Q earnings to $66.3 million on absence of one-off gain, higher costs
“Stripping out the special dividend CDG received in 1Q17 from Cabcharge Australia, CDG’s 1Q18 PATMI came in within our expectations as it fell 7.1% y-o-y,” says OCBC Investment Research’s lead analyst Eugene Chua in a Monday report.
“In addition, we note that management guidance for revenue outlook for taxi, automotive engineering services and UK public transport services turned more positive from decrease in revenue to maintain revenue,” he says.
OCBC is keeping its “buy” call on CDG with a higher fair value estimate of $2.50, raised from $2.25 previously.
At the same time, Chua believes that CDG’s recent acquisitions will positively contribute towards reducing its reliance on the disrupted taxi business in Singapore.
“Since the beginning of the year, [CDG has] announced eight acquisitions totalling approximately $137 million, which we estimate will make positive contributions to its bottom-line,” says Chua.
Over at Phillip Capital, analyst Richard Leow opines that CDG’s acquisition spree will bear fruit in the second half of 2018.
“The group has been on an acquisition trail and has been approached on many deals,” says Leow. “Management maintained that it will utilise capital prudently and apply the necessary due diligence for each deal.”
However, as a result of a recent run up in CDG’s share price, the brokerage is downgrading CDG to “accumulate”, from “buy” previously, and lowering its target price marginally by 1 cent to $2.49.
“The outlook is mainly positive,” says Leow. “Recent consolidation of the private-hire car industry has resulted in pricing rationalisation, in turn resulting in some flow of drivers back to [taxis]. The purchase of 200 new taxis signals the worst could be over.”
On the back of expectations that CDG’s taxi segment is set to improve, Maybank Kim Eng Research has raised its target price by 13% to $2.65. The brokerage has a “buy” call on CDG.
“We raised our FY19-20E EPS by 3-4%, as we now expect the taxi segment to stop declining in FY19 onwards. Previously, we expected taxi EBIT to fall 3-8% for FY19-20E,” says analyst John Cheong in a Monday report.
“Management has turned more positive on the taxi segment as it’s starting to see increased demand from drivers who switched from private hire cars, as they find taxis relatively more stable. In addition, taxi EBIT rose 19% q-o-q in 1Q18,” he adds.
As at 1.06pm, shares of ComfortDelGro are trading 3 cents higher at $2.37. According to OCBC valuations, this implies an estimated price-to-earnings ratio of 17.3 times and a dividend yield of 4.6% for FY18.
