CGS-CIMB Group Research analyst Ong Khang Chuen has kept an “add” rating on ComfortDelGro with an unchanged target price of $1.80.
Across Australia, UK and Singapore, Google Mobility showed meaningful recovery in all three areas for ComfortDelGro, although the surge in Covid-19 cases arising from Omicron variant dampened mobility from Dec 2021 to Feb 2022 previously.
In lieu of the significant easing of Covid-19 restrictions in Singapore as well, with gathering size limits doubling to 10 effective Mar 29 to sale and consumption of alcohol allowed beyond 10.30pm and up to 75% of employees were allowed back to office (from 50% pax), Ong expects even greater recovery in 2QFY2022 ending December.
Moreover, border restrictions were also largely lifted, as vaccinated travellers into Singapore are no longer required to take designated vaccinated travel lane (VTL) flights or undergo an ART test within 24 hours of arrival.
ComfortDelGro’s rail ridership was at 70% of pre-Covid levels in Mar 2022, as compared to 66% in Feb 2022, with Ong forecasting recovery to reach 85% of pre-Covid levels by end-FY2022.
The analyst believes that aside from rail ridership recovery, ComfortDelGro’s framework agreement with the Land Transport Authority (LTA) will contribute positively to earnings in FY2022, partially making up for the absence of wage subsidies under the Job Support Scheme (JSS).
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents
Under the new agreement, the group’s Downtown Line (DTL) has undergone a license charge structure change, which is estimated to cut rail segment losses by at least $30 million per annum from FY2022.
Meanwhile, the lower service fee for renewed bus contracts by $11 million FY2022 will only be effective from September.
Considering higher fuel prices and operating costs of late, both taxi and private hire platforms have raised base fares to ease cost burden on the drivers. “Based on our channel checks, dynamic pricing for point-to-point transport operators have been rising YTD, and is currently at 20.5%-38.5% of June 2021 levels,” says Ong.
See also: Suntec REIT biggest beneficiary from MAS’s ‘looser’ leverage, ICR rules: OCBC
“However, aggressive promotional campaigns currently offered by ride-hailing platforms in Singapore could limit ComfortDelGro’s ability to narrow taxi rental rebates of 15% offered to its drivers in the near term, in our view,” he adds.
Some downside risks include a resumption of strict Covid-19 measures.
Overall, while the analyst believes ComfortDelGro could see tough comps on a y-o-y basis for its 1QFY2022 earnings, he expects 34% EPS growth in FY2022 from ridership recovery in the coming quarters.
“We lower our FY2022-FY2024 EPS forecasts by 3.5%-6.8% on the back of lower taxi rental rate assumptions,” he says.
As at 1.56pm, shares in ComfortDelGro are trading at 1 cent up or 0.68% higher at $1.49 at a FY2022 P/B ratio of 1.15x and dividend yield of 5.13%.
