RHB Group Research is keeping its "buy" recommendation on ComfortDelGro with a target price of $1.77. However, the stock has not breached the $1.70 mark since Dec 2020.
According to analyst Shekhar Jaiswal, he likes the stock as its rail business continues to register higher y-o-y ridership while its taxi wing has maintained its market leadership position in Singapore.
As an indirect beneficiary of increased tourism inflows into the island republic, the analyst has noticed that its share price has lagged the other re-opening plays. "We believe market could be concerned about potential weak earnings in 2HFY2022 ending December from its UK and China operations. Nevertheless, we feel confident of ComfortDelGro’s earnings recovery and believe its valuations remain compelling," says Jaiswal.
The group has been continuously undertaking bite-sized overseas acquisitions, most specifically in Australia.
Elsewhere, it has also recently acquired Irish coach operator GoBus for EUR 12 million ($17 million). This will make it the third-largest inter-city coach operator in Ireland. The group will get a fleet of 31 buses and three inter-city coach routes.
The routes have been experiencing strong commuter demand in recent months, with one of these route already operating at pre-pandemic levels. ComfortDelGro’s current Irish business operates a fleet of 33 buses and transports over 28,000 people a week across all routes. It is forecasted to reach a ridership of more than 35,000 by end 2022.
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To that end, the analyst has left his forecasts unchanged, as the earnings impact are expected to be limited.
Meanwhile in Singapore, the recent rise in Covid-19 number may be a concern, but the government has not imposed any fresh domestic restrictions and has kept borders open. Although tourist numbers are far off from pre-Covid-19 levels, it is still on a rising trend.
"Anecdotally, we are seeing strong demand for taxis during peak hours and fares tend to be cheaper than those offered by ride-hail services providers like Grab and Gojek. This should be positive for ComfortDelGro’s taxi business," says Jaiswal.
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On the other hand, the group's public transport subsidiary SBS Transit has been reporting strong improvement in its rail ridership. ComfortDelGro's rail ridership in 2QFY2022 is 39% higher y-o-y and 17% higher q-o-q. Ytd-June rail ridership is only 25% below pre-pandemic levels. This should help improve public transport earnings in Singapore, the analyst says.
While the analyst's target price of $1.77 implies 17.2x FY2023 P/E, a tad higher than its average forward P/E of about 16.4x, but he deems it as reasonable – in view of its ongoing strong earnings recovery. The stock is currently trading at about 14.5x one-year forward P/E.
As at 12.50pm, shares in ComfortDelGro are trading at $1.43.
Photo: ComfortDelGro
