ComfortDelGro's share price has gained more than a third since its 20-year low of $1.01 last June but analysts Chee Zheng Feng and Andy Sim of DBS Group Research remain upbeat on this counter.
"Nonetheless, we believe the ride is still not over," write Chee and Sim in their March 11 note.
They see three positive factors to drive a re-rating of the land transport operator, as they raised their target price for ComfortDelGro C52 from $1.67 to $1.80.
First, the local so-called point-to-point market is seeing ongoing shifts compared to how it used to operate, and which the company is tapping to generate growth.
Such shifts, according to DBS, include changes in booking commission, integration with the Gojek platform, the introduction of an auction-based model and levelling of P2P playing field in Singapore, amongst others.
Next, the company's various public transport segments should see continued improvement in operating profit this current FY2024, driven by a turnaround in its UK business, and higher fares in Singapore rail.
Last but not least, the company is tapping its cash-rich balance sheet to make a series of bolt-on acquisitions to drive further growth, including transport operators in markets such as Australia and UK, and it remains on the lookout for more deals ranging from $100 million to $200 million.
"It has also stated its willingness to go into a net debt position if required. We believe this is a great sign that the company is actively managing capital by sourcing for attractive deals to drive continued growth of the company," the analysts state.
According to the management, its acquisition criteria are reasonable valuations; being earnings accretive and within its domain and geographical expertise.
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The DBS analysts believe that two of these recent deals can add 3.1% pro-rata to ComfortDelGro's FY2024 earnings and 5.4% to the coming FY2025's earnings.
The analysts expect the company to report earnings of $224 million for FY2024, 7.7% above the consensus of $208 million.
The revised target price of $1.80 is based on a combination of a 1.3x P/BV multiple and a higher 5.5x forward EV/EBITDA multiple given its expected growth of more than 20% going into FY2024.
"We anticipate further re-rating of the company's valuation given our confidence in its ability to deliver, and even exceed, our earnings growth expectations," say Chee and Sim.
As at 9.28am, ComfortDelGro is up 2.21% to change hands at $1.39.
