RHB Group Research is reiterating its “buy” recommendation on public and private transport operator ComfortDelGro (CDG) C52 with an unchanged target price of $1.40, on the back of compelling valuations and strong yields.
Analyst Shekhar Jaiswal expects the stock to deliver 11% profit growth in FY2023 ending December, aided by the recoveries in Singapore rail ridership, Australia bus charters, UK coach services, and Singapore and China taxi services.
SBS Transit S61 , the group’s Singapore public transport subsidiary has reported continuing improvements in rail ridership. The average daily ridership in February was 51% and 38% higher than the ones in the same month for 2022 and 2021 respectively. But on a ytd basis, average daily ridership was 7% lower than 2019 levels.
“We believe this improvement, which should sustain itself during the coming months, will help support the profits from the public transport business. While the taxi fleet in Singapore is on the decline, CDG has gradually increased its market leadership position within this segment,” says Jaiswal, adding that the strong demand for taxi services should continue to support driver earnings and enable CDG to gradually taper off rental rebates.
As the public transport ridership in Singapore had seen a strong recovery in 2022, with more people returned to work and leisure activities after two years of Covid-19-related restrictions. “We expect the public transport services, especially rail services, to witness a strong increase in ridership on higher tourist arrivals in 2H2023,” says the analyst.
He also expects the group’s Singapore and China taxi businesses to benefit from the East Asian nation’s economic reopening.
“Despite expectations of higher operating costs, the uncertainty over the timing of indexation formulas, and lower bus service fees, we believe CDG can deliver about 10% profit growth during FY2022 to FY2025,” says Jaiswal, who also expects a higher dividend payout in FY2023. He estimates a 65% payout ratio for FY2023 to FY2025, which implies yields of 5-6%.
Overall, Jaiswal sees the stock as attractive as its share price has outperformed the rapidly falling Straits Times Index (STI) in the last month, as investors value its ability to deliver growth despite macroeconomic uncertainties, as well as its ability to sustain higher dividend payouts. At this point, the stock is trading at an attractive FY2023 P/E of 13 times, compared to its historical mean of 16 times.
Shares in CDG last traded at $1.18 on Mar 15.
