t was announced that the listing of Yangzijiang Shipbuilding’s (YZJ) Yangzijiang Financial Holding (YZJFH) will take place on April 28. YZJFH will be added to the Straits Times Index (STI), FTSE ST Mid Cap Index, FTSE ST China Index and FTSE ST All-Share Index, YZJ said in a Singapore Exchange filing.
This is not good for ComfortDelgro as it is the smallest component of the STI with a market capitalisation of $3.27 billion as at April 21. The index component stocks will be ranked according to full market capitalisation on April 28 with the smallest constituent removed from the index effective May 5. The next smallest company by market capitalisation is Keppel DC REIT with a market cap $3.6 billion.
“In essence, unless YZJFH or YZJ Shipbuilding trades below ComfortDelgro’s market cap on April 28, ComfortDelgro will be subject to removal from the STI from May 5,” says a DBS Group Research note.
If this is to be the case, ComfortDelgro would have to be removed from the two main STI ETFs, SPDR STI ETF and NikkoAM STI ETF. DBS says the total holdings of ComfortDelgro in these two ETFs is $33 million while the average daily trading volume of ComfortDelgro is around $19 million.
“While we can expect some near term pressure on ComfortDelgro’s share price as the ETFs rebalance, the stock’s liquidity appears [sufficiently] ample to absorb the impact. We currently have a buy call on ComfortDelgro with a target price of $1.95,” DBS says.
According to the DBS report, ComfortDelgro is a major beneficiary as economies open up. Its key markets are the UK, Singapore and Australia which are moving towards living with Covid. “Mobility trends in Singapore have already begun to normalise amid the ongoing reopening. As such, we are forecasting ComfortDelgro’s FY2022 net profit to rise around 26% y-o-y as its key segments see increased ridership and demand,” DBS says.
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Meantime, public listings of Grab on Nasdaq and Goto on Jakarta are likely to open up these companies to more scrutiny from regulators and investors. That could lead to less intense competition, DBS suggests. Indeed, these two companies could be under pressure to focus on their bottom lines, with an eventual eye on reporting positive operating cash flows and earnings. In Singapore, certificate of entitlements or COEs of cars are at extraordinarily high levels, which may dissuade the public from buying cars. These new trends could reduce aggressive competition and improve the economics of renting taxis. In turn, ComfortDelgro’s rental taxi fleet could reverse its declining trend, DBS reckons.
In DBS’s view, ComfortDelgro is an emerging sustainability play. “The group has invested in green projects that include the provision of electric vehicle charging infrastructure and a greening of its bus and taxi fleet, which could potentially pave the way for inclusion in ESG indices,” DBS says.
ComfortDelgro’s price chart shows the stock at the top of a major base formation. Although prices have risen above the 200-day moving average at $1.495 and the 50-and 100-day moving averages have made a positive cross, an upside break would be a tall order, given the dynamics of the STI. Excluding the inclusion of YZJFH, ComfortDelgro looked like the stock could have garnered sufficient volume to effect a breakout.
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As at April 21, ComfortDelgro’s share price remained unchanged. On an outside chance that a breakout materialises, YZJFH would need to trade below a market cap of $3.2 billion.
