Brokers' Digest 967

Maybank Kim Eng analyst Kareen Chan has maintained “buy” on transport operator ComfortDelGro (CDG) with a higher target price of $1.88 from $1.76 previously, as she predicts that ridership for taxis and public transport will improve this year.

Chan has also upped CDG’s EPS by 23% to account for operating leverage amid a ridership rise.

“CDG offers exposure to domestic transport recovery, which should see a faster pace of turnaround compared to aviation. Downside risks include further impairment of UK businesses due to the worsening Covid-19 situation,” she says in a report dated Jan 11.

Due to the further easing of social distancing and work from home (WFH) measures, Chan says she expects a sequential recovery in rail ridership.

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The availability of Covid-19 vaccines will also help to boost public transport ridership, making it another positive for the counter.

Meanwhile, CDG’s bus contracting model (BCM) should remain stable as these are fixed contracts, and the Covid-19 situation in Singapore and Australia continues to remain under control, she notes.

See also: OCBC’s Vasu Menon expects US Fed to raise rates by 25 bps; ‘banking crisis’ does not spell ‘gloom and doom’

“A sharp drop in fuel prices in January to April 2020 has resulted in lower BCM contract fees in 1HFY2020. With fuel prices recovering since 2QFY2020, we expect BCM to contribute a more stable portion in FY2021,” says Chan.

“Thus, we have factored in 4.5% y-o-y revenue growth in public transport for FY2021 as we assume rail ridership will return to 75% of pre-Covid levels,” she adds.

Ridership has seen a sharp rebound in 3QFY2020 ended September, as commuters now prefer taking taxis or private hire cars to reduce social interaction.

“The momentum should continue to gather steam, and alternative data (the number of taxis at taxi stands during peak hours) suggests that taxi idling rate has decreased around 90% in the past three months,” she says.

Chan also cites anecdotal data — garnered from conversations with taxi and Grab drivers — suggesting that the situation has improved and that “drivers have started choosing their calls and routes to maximise income”.

“Meanwhile, the implementation of stricter point-to-point regulation for PHC firms, and potential merger of Grab and Gojek indicate less competition for CDG,” she adds.

“Overall, we do not expect CDG to provide substantial rental rebates to taxi drivers and forecast 30% y-o-y revenue growth this year,” she adds.

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Chan foresees that CDG’s stock price may recover in stages. This, she says, is catalysed by the easing of WFH measures, the control of the number of Covid-19 infections in the UK and the return of tourists when air travel resumes.

“The stock is trading at 24.1 times FY2021 P/E with 2.5% FY2021 yield. The current price implies 1.4 times P/B, which is 2 standard deviation below historical mean. Covid-19 has made inflection points hard to predict but CDG offers value as the worst is over and long-term fundamentals are intact,” she adds.

OCBC
Price target: CGS-CIMB “add” $12.52

New CEO Wong’s Hong Kong experience a positive

CGS-CIMB Research analysts Andrea Choong and Lim Siew Khee have maintained their “add” call on Oversea-Chinese Banking Corporation (OCBC) with an unchanged target price of $12.52 on Jan 9.

This follows news that the bank will be welcoming a new group CEO on April 15.

On Jan 8, OCBC announced that Helen Wong will replace Samuel Tsien. Wong will be the first woman to head a Singaporean bank.

To Choong and Lim, Wong’s extensive experience in other banks in Hong Kong is a plus.

“We are positive on Wong adding immense value to OCBC, especially given the overlap of her expertise in navigating Greater China and the bank’s strategy of strengthening its franchise in this region, and see prospects of long-term share price enhancement under her management,” they say.

They also see Wong expanding OCBC’s Greater China franchise further. Tsien, who will retire in April after running OCBC since 2012, had emphasised OCBC’s strategy in expanding into the region.

As a result, the bank’s Greater China loan book grew from $17.4 billion in 2012 to $67.3 billion in 2QFY2020 ended June.

In turn, wealth management income rose from $1.8 billion in 2012 to $3.4 billion in 2019.

“We expect OCBC to further leverage on its regional connectivity for growth, aiding the bank’s mainland clients in expanding their businesses in Southeast Asia and vice-versa,” they add.

Riverstone Holdings
Price target: DBS Group Research “buy” $1.85

Correction brings price to a more attractive level

DBS Group Research analyst Ling Lee Keng has upgraded Riverstone Holdings to “buy” from “hold”, albeit with a lower target price of $1.85 from $2.03 previously.

The upgrade comes as valuations for the counter have become more “attractive” after a correction of close to 50% in its share price since last November.

“Riverstone is now trading at an attractive 7.3 times P/E for FY2021 ended December, which is near –1 standard deviation of its five-year P/E average,” says Ling in a Jan 11 report.

“Furthermore, we also expect a bumper dividend for FY2020.”

Ling downgraded her rating on Riverstone to “hold” on Nov 11 last year and lowered her target price to $2.03, from her previous figure of $2.76. The downgrade was triggered by news of Covid-19 vaccines becoming available, thus affecting demand for rubber gloves.

However, she now sees hygiene remaining a key concern globally. Thus, the demand will not taper off right away.

Ling’s new price target is pegged to Riverstone’s average five-year P/E of 12.8 times, but rolled forward to blended FY2021 to FY2022 earnings to capture the impact that the Covid-19 pandemic has brought to the company.

She also expects Riverstone’s average selling price (ASP) for FY2021 to be “firm” on the back of strong demand and tight supply.

“The ASP increase for January and February is about 5% to 10% m-o-m,” she says. “Order visibility has further extended to December 2021.” — all by Felicia Tan