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DBS lifts ComfortDelGro’s TP to $2.06 on the back of potential Australia IPO

Khairani Afifi Noordin
Khairani Afifi Noordin11/8/2021 02:20 PM GMT+08  • 3 min read
DBS lifts ComfortDelGro’s TP to $2.06 on the back of potential Australia IPO
The IPO prospectus extract reveals resilient topline performance amid the Covid-19 pandemic.
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DBS Group Research analysts Woon Bing Yong and Paul Yong have kept “buy” on ComfortDelGro (CDG) as they believe the listing of ComfortDelGro Corporation Australia (CDC) could crystallise its value.

The initial public offering (IPO) prospectus extract reveals resilient topline performance amid the Covid-19 pandemic, the analysts say. “Notably, CDC's pro forma historical revenue for FY20 inched down 2.8% y-o-y to A$646.7 million, despite the impact of the pandemic.”

While net profit declined at a faster rate of 32.8% y-o-y due to the high operating leverage nature of the business, CDC’s FY21 revenue is projected to rise above pre-pandemic levels to A$672.6 million — shrugging off the effects of the pandemic.

See: RHB raises ComfortDelGro's TP to $2.10 on economic reopening play

Conservatively, the analysts believe CDC’s enterprise value could be worth upwards of A$1.2 billion, representing more than 9.0 times FY22F EV/EBITDA. This translates to an equity valuation of above A$980 million for CDC.

"Assuming a reasonable enterprise valuation of $1.3 billion for CDC, based on 10 times FY22F EV/EBITDA, as well as current market valuations for VICOM and SBS Transit, CDG’s remaining businesses is currently valued at a bargain 3.9 times FY22F EV/EBITDA," the analysts highlight.

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To this end, Woon and Yong have upped their target price estimate on the transport operator to $2.06 from $1.94 previously.

​​CDG was in a net cash position of about $493 million as at end-June. Woon and Yong say the company could raise a further $390 million to $560 million in cash proceeds from the IPO, based on a valuation range of 8 times to 12 times FY22F EV/EBITDA.

“While a special or higher dividend may be on the cards, we believe the cash may also be funneled into other strategic areas such as mergers and acquisitions and investments into sustainability.

See also: UOBKH ups Raffles Medical's TP as its transitional care facilities join Singapore's healthcare ecosystem

“Indeed, CDG may potentially be a market leader in Singapore’s electric vehicle (EV) charging infrastructure space with Singapore targeting to have 40,000 charging points by 2030,” say the analysts.

They add that the recent EV charging win by the joint venture between CDG and French energy giant ENGIE bodes well for the transport operator’s future in the space.

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As CDG’s Singapore taxi fleet continues to bottom, DBS believes that the gradual lifting of restrictions in the coming months may provide the impetus for recovery. “As such, we are forecasting FY22F Taxis revenue to rise 14.4% y-o-y on the back of a fleet of 9,000 taxis and lower rental waivers in FY22 offset by a tapering of government relief.

“Barring a serious lockdown or aggressive promotions by competition, FY22F operating profit is forecasted to improve to $60.7 million,” they add.

Singapore’s Public Transport Council had announced that fares will be increased by 2.2% for 2022, lower than DBS’ projected 7% rise. As pandemic restrictions are gradually lifted, the analysts expect rail ridership to gradually improve.

“We are hence forecasting FY22F public transport services revenue of $2.9 billion on average daily ridership of about 940,000. Additionally, the Auckland Rail Contract is set to commence in January 2022 and we are forecasting it to contribute from $3.5 million to $7.5 million to CDG’s bottomline,” the analyst note.

As at 2.17pm, shares in CDG are trading 3 cent higher or 1.86% up to $1.64.

Photo: CDG

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