After years of losing market share to ride-hailing apps, ComfortDelGro (CDG) is poised to protect its core taxi business. Competition from platforms like Grab and pandemic challenges led to CDG’s share price dropping to $1.02 on June 7. However, it rebounded and closed at $1.29 on Aug 16.
“ComfortDelGro is still first and foremost a land transport company,” says managing director and CEO Cheng Siak Kian at the company’s 1HFY2023 results briefing on Aug 14. “We are really trying to make sure that we are no longer the typical taxi rental company of ComfortDelGro in the past.”
For the six months ended June, earnings dropped by 31.9% y-o-y to $78.5 million. Excluding the one-off gain of $30.5 million from the sale of a property in London, CDG’s earnings were down 7.4% y-o-y because of higher operating costs.
There are clear and recent signs of recovery from the pandemic years. In 2QFY2023, CDG’s earnings rose by 39.3% from the previous quarter while its earnings for 1HFY2023 were up by 35.8% on a h-o-h basis.
CDG has declared an interim dividend of 2.90 cents per share, representing a payout ratio of 80%. To signal its confidence, CDG is revising its dividend policy to distribute at least 70% of its earnings, up from 50%.
In its results statement, chairman Mark Greaves, who replaced founding chairman Lim Jit Poh in April, notes that CDG was on the “cusp of change” and that it is “committing to new technologies and future engines of growth”.
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CDG aims to strengthen its core by regaining bus contracts and embracing technology to electrify its fleet and depots. It also seeks to shift from fixed rental to flexible commissions to appeal to drivers, and is considering repricing and flat fee hikes for a competitive advantage against Grab’s surge pricing.
The group announced a $6 billion commitment to electrify its fleet, where most vehicles, be it taxis or buses, are still running on conventional engines. Christopher White, senior vice president of CDG’s group investor relations, says this sum will be spent over 15 to 20 years.
With a cash hoard of more than $500 million, CDG is also exploring potential acquisitions such as other bus, taxi and PHV companies as well as expanding into new regions and/or cities within its existing markets.
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Cheng is unfazed by Grab’s bid for fellow taxi operator Trans-Cab. He is confident CDG’s taxis will continue to add value to the system and will co-exist with the disrupters, and that private hire vehicles will not dominate. “We believe that we can spread our assets much better. Taxi drivers are more prepared to work the two shifts compared to a [private hire driver],” he reasons.
Chairman Greaves says: “We’ve got the reputation, we’ve got the quality, we have to maintain vehicles, you know what you’re getting. And I think that’s very important.”
Analysts from CGS-CIMB Research, DBS Group Research, Maybank Securities, OCBC Investment Research (OIR) and RHB Bank Singapore have raised their target prices for CDG while keeping their “add” and “buy” calls.
CGS-CIMB’s Ong Khang Chuen sees CDG’s taxi segment as its “bright” spot in FY2023 as trip volumes remained stable after the introduction of its platform fees in July. “We forecast further revenue uplift of $11 million in 2HFY2023, assuming constant ride volumes,” he says. CDG’s UK operations are also expected to return to a positive ebit in 2HFY2023 on better cost pass-through.
CDG expects its new contracts in the UK to be tendered with “significantly higher service fees” which will help “with margin repair”, Ong adds, who has a raised target price of $1.47 from $1.35.
RHB’s Shekhar Jaiswal has raised his target price to $1.40 from $1.35 as he remains “optimistic” about the continued increase in CDG’s profit amid an “improving outlook for its UK public transport and Singapore taxi and private hire businesses”.
DBS’s Andy Sim and Chee Zheng Feng, who have raised their target price to $1.65 from $1.62, estimates that CDG’s recent introduction of a platform fee of 70 cents per ride booked via the Zig taxi app could lift FY2023 and FY2024 bottomlines by $5.7 million and $12.4 million respectively.
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Maybank’s Eric Ong, who has upped his target price to $1.50 from $1.45, sees more room for CDG to raise its commission rate, which is currently at 5% compared to its peers’ range of 15% to 20%.
OIR’s Ada Lim, who is relatively restrained compared to her peers, has raised her fair value estimate to $1.31 from $1.25 as she notes the various improvements. “However, given that CDG’s future engines of growth are still in a relatively nascent stage, and the absence of concrete targets, we continue to await a more meaningful catalyst for the stock,” Lim says.
