SINGAPORE (Nov 16): UOB Kay Hian is reiterating its “buy” call on ComfortDelGro with a target price of $2.25, as the group’s results were broadly in line and it’s “coping well” amid revenue pressure.
The group posted 3Q17 earnings drop 8.2% to $80.1 million from $87.3 million last year, bringing 9M17 earnings to $242 million.
Revenue decreased 2.4% to $991.4 million in the face of strong competition.
Revenue from the group’s public transport services increased 4.5% to $601.5 million, but revenue from the taxi business declined 11.2% to $298.3 million, while inspecting and testing services dropped 2.2% to $26.3 million.
See: ComfortDelGro reports 8.2% fall in 3Q earnings to $80.1 mil
In a Monday report, analyst Andrew Chow says, “Though 9M17 accounted for circa 82% of our estimate, 4Q tends to be seasonally weaker and we see more pressure ahead, particularly for its Singapore taxi segment.”
In 3Q17, taxi idle rates increased q-o-q to 5.4% from 5.0%.
The group’s management says that its fleet in 3Q17 averaged 15,800 units, but due to the higher idle rates and scrapping of older Hyundai cars, this is likely to trend down.
Nevertheless, the management has taken steps to help stem the decline, such as the roll-out of an option for fixed fares and lower rentals but with revenue share for its drivers.
Although taxi bookings were down 20% y-o-y in 9M17, the group said that 3Q17 bookings were up q-o-q, though no exact figures were provided.
In its public transport services segment, the group hopes that the Downtown Line will breakeven in early-2019 when average ridership hits about 500,000/day.
As for its bus operations in UK, Metroline is performing well with two new routes, but Scottish Citilink is seeing intensifying price competition
In Australia, the group’s business is doing well and management sees mergers and acquisitions (M&A) opportunities, but these would be relatively small M&As.
In addition, the group announced earlier in August that it is in exclusive talks to form a potential strategic alliance with Uber Technologies, which management hopes discussions could be concluded by end-2017.
See: ComfortDelGro and Uber in exclusive talks over possible alliance
At the stock’s current price, the analyst believes that it has mostly reflected the disruption from private hire cars.
“We see limited downside risk to current share price as taxi earnings will unlikely be zero in the next 2-3 years and the long-term outlook for public infrastructure (bus and MRT) in Singapore will still be very resilient,” says Chow.
The analyst also sees potential upside to the group’s rail earnings, given the government’s plans to double rail network by 2030, with the next upcoming line being the Jurong Region Line, which is expected to be completed in 2025.
As at 11.35am, shares in ComfortDelGro are trading 5 cents lower at $2.04 or 1.7 times FY17 book, with a dividend yield of 4.9%.
