SINGAPORE (Jan 3): RHB has given Singapore’s land transport sector an “overweight” rating amid regulatory tailwinds and improved growth prospects.

As the only publicly listed stock offering exposure to the sector, ComfortDelGro has been highlighted as one of RHB’s top “buy” recommendations with a target price of $3.24.

In a Tuesday note, analyst Shekhar Jaiswal observes a “positive impact” from the recent implementation of the government contracting model (GCM) for buses, which transfers revenue risk to Singapore’s government while enabling bus operators to earn a reasonable profit margin for providing higher service levels.

“2017 will be the first full year when bus operators would earn 7-8% EBIT margin for public bus business, which used to be loss-making in the past,” says Jaiswal.

He furthermore notes that new regulations for private car hire apps such as Uber and Grab are due for industry-wide compliance by 1H17. These regulations will require private-hire car drivers to obtain a vocational licence in order to operate, as well as register their cars with the Land Transport Authority (LTA).

Although Jaiswal acknowledges these do not serve an equaliser in terms of regulations, he believes such new policies signal “the first step” towards regulating the use of private-hire car apps.

As such, he thinks ComfortDelGro is positioned for growth despite the increased competition in the Singapore taxi industry, being the only listed land transport company in Singapore after Temasek’s privatisation and subsequent delisting of SMRT in 2016.

The analyst also expects the stock to benefit from its “well-diversified global exposure” to land transport operations in Singapore, the UK, and Australia.

As at 1.10pm, shares of ComfortDelGro are down by 2 cents at $2.45.