SINGAPORE (Nov 14): Most analysts remained neutral on mainboard-listed ComfortDelGro Corporation after it posted a 10.8% fall in 3Q19 net profit to $70 million.

However, Maybank Kim Eng Research is more optimistic about the transport giant’s future – it could see increased profits soon due to higher rail fees and reduced public transport margins.

ComfortDelGro’s weakening taxi business has been cited as cause for the net earnings dip. Income from its shrinking cab fleet – which at 11,000 is the company’s lowest in nearly 20 years – dipped 9.6%.

Cezzane See and Ong Khang Chuen of CGS-CIMB Research also blamed stiff competition from ride hailing operators like Grab and Gojek. This negated the rebates and rebalancing initiates the land transport operator had rolled out to help drivers manage costs.

While Maybank Kim Eng points out that ComfortDelGro’s taxi business is under pressure, they say the dip is “not as bad as expected”. Maybank Kim Eng’s Luis Hilado opines: “Management remains cautious of the competitive environment but noted that the rate of fleet and driver decline is not as severe as in the past”.

Meanwhile, CGS-CIMB says the group’s public transport segment may see higher costs in the coming quarter, especially from the higher maintenance expenditure for rail operations as well as the introduction of a fixed license charge to the Downtown Line (DTL) which is operated by ComfortDelGro subsidiary SBS Transit.

“We expect further weakness in ComfortDelGro’s public transport segment margins in FY20F, as we believe the continued increase in its average daily ridership and rail fare hike of 7% by end December will be insufficient to offset the higher maintenance expenses,” adds the brokerage.

Four brokerage houses – Maybank Kim Eng, RHB Group Research, CGS-CIMB and DBS Group Research – maintain active coverage of the operator. Three of them – RHB, CGS-CIMB and DBS – posted a “hold” call with target prices ranging from $2.28 to $2.38.

However, Maybank Kim Eng posted a “buy” call at a target price of $2.70, based on a forecast profit increase of 2% to 3%, on the back of higher rail fees and reduced public transport margins.

"Despite margin pressure, we continue to anticipate profit growth to be driven by public transport service (bus and rail) revenues. This will come from a combination of local fare hikes, and improvements in existing overseas ventures," says Maybank Kim Eng.

Shares in ComfortDelGro closed 6 cents lower, or down 2.5%, at $2.32 on Thursday.