ComfortDelGro may be past its “worst rocky stretch”, but ridership will be slow to recover, say analysts. Without government reliefs, public transport and taxi segments could remain loss-making in 3Q2020, say CGS-CIMB analysts Ong Khang Chuen and Cezzane See in an August 16 note. 

The transport operator reported a 2Q20 net loss of $42 million, bringing 1H20 into a net loss position of $6 million. Revenue in the same period was down 20.8% y-o-y to $1.53 billion, as ridership fell due to the circuit breaker measures.

The results, released on August 14, were deemed “catastrophic” by chairman Lim Jit Poh. Lim added that if not for the government subsidies, the company would have been $66.1 million in the red instead of just the $6 million it posted.

Key drags during the quarter were taxi (with a $57 million operating loss) and SBS Transit ($44 million operating loss), say Ong and See, given the full taxi rental waiver and low rail ridership during the two-month circuit breaker in Singapore. Due to its losses for 1H20, the company did not declare an interim dividend.

“Further relaxation of Covid-19 restrictions is needed to support earnings recovery and re-rating of share price,” note the analysts. Ong and See are maintaining “hold” on ComfortDelGro with a lowered target price of $1.40 from $1.46. 

See also: ComfortDelGro sinks into the red with $6 mil loss, skips interim dividend

Ridership normalisation in Singapore since the lifting of the Covid-19 lockdown has been slower than expected, say Ong and See, as working from home remains the default option in the current phase of reopening. 

Rail ridership in July remained low at approximately 50% of pre-Covid-19 levels, compared to 36% in the month prior. To support taxi drivers’ earnings, ComfortDelGro announced a 30% daily taxi rental rebate until September 15, a slight step down from the 40% rental rebate given from July 16 to August 15. Management guided that the rebates will continue to taper in the coming months, but this initiative could be extended till year-end, versus previously guided to September, say the CGS-CIMB analysts.

DBS Group Research analyst Andy Sim is looking beyond the weak 2Q20, however, despite the recent operating results, the worst in its history since ComfortDelGro’s formation as a combined entity in 2003.

Sim is looking ahead to a potential recovery in 2H2020 and FY2021. 

“We expect sequential but gradual improvement in 3Q and urge investors to look further out towards 2021,” he says in an August 16 note. Sim is maintaining “buy” on the company with a lowered target price of $1.63 from $1.68. 

Sim also warned of deterioration in the Covid-19 situation, along with heightened and prolonged irrational competition from private-hire companies, leading to further contraction in taxi fleet, loss of bus contracts, and changes in regulations on operations.

PhillipCapital’s head of research Paul Chew holds a similarly optimistic outlook, stating that a bottom has likely formed and a recovery is underway, albeit tepid. In an August 17 note, Chew has upgraded its call to “accumulate”, with a raised target price of $1.60 from $1.50 previously. 

“We were surprised by the large decline in public transport earnings caused by bus operations that do not assume ridership risk and schedules were not severely cut,” he says.

“Comfort has a 60% market share of bus and taxi services in Singapore plus a 36% share in the rail network. The high fixed cost of the business can also lead to steeper operating leverage as activity improves,” he adds. 

Likewise, RHB analyst Shekhar Jaiswal expects a gradual earnings recovery for ComfortDelGro, reiterating “buy” on the company but with a lowered target price of $1.55 from $1.65. 

“While ComfortDelGro’s share price is expected to remain weak in the near term amidst poor 1H2020 earnings, we note a gradual improvement in public transport ridership and m-o-m improvements in its taxi business,” says Shekhar in an August 17 note. 

“The winning of bus tenders in Singapore will be near-term positive. The weakness in its share price offers investors an opportunity to accumulate the stock – as, operationally, the worst may be behind it, and ComfortDelGro seems set to deliver strong growth in 2021.”

As at 12.43pm, shares in ComfortDelGro are trading at 5 cents higher, or 3.6% up, at $1.44.