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'Hold' ComfortDelGro in for bumpy recovery post-circuit breaker: CGS-CIMB

Jovi Ho
Jovi Ho • 3 min read
'Hold' ComfortDelGro in for bumpy recovery post-circuit breaker: CGS-CIMB
CGS-CIMB analyst Ong Khang Chuen is maintaining “hold” on transport operator ComfortDelGro (CDG), with a reduced target price to $1.46 from $1.50 previously, largely due to the Covid-19 pandemic.
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SINGAPORE (Jul 1): CGS-CIMB analyst Ong Khang Chuen is maintaining “hold” on transport operator ComfortDelGro (CDG), with a reduced target price to $1.46 from $1.50 previously, largely due to the Covid-19 pandemic.

“While we had already expected ComfortDelGro to record a net loss in 2Q20 due to lockdown measures across [its] key operating regions, the announcement came as a negative surprise as it implies wider losses during the period,” Ong writes, in a report dated June 29.

Warning of “potholes ahead”, Ong noted that a net loss is expected for 1HFY20.

The moody outlook is underscored by the Covid-19 pandemic, with the circuit breaker and social distancing measures “significantly impacting ridership” for the transport operator.

In addition, ComfortDelGro’s local and overseas subsidiaries are expected to take a hit, with its Comfort and CityCab taxi companies suffering the effects of the circuit breaker.

As the owner of Singapore’s largest taxi companies, “continued taxi rental rebates and higher taxi idle rates” will contribute to weaker segment profitability for ComfortDelGro, noted Ong.

On Apr 3, ComfortDelGro introduced a month-long taxi rental waiver, after schools and offices were ordered to close as part of the circuit breaker. The waiver was later extended for another month. The total relief package was reported to cost some $116 million.

Since June 2, ComfortDelGro cabbies have enjoyed a 50% rental rebate. While this is slated to end on July 15, a further extension may be on the cards, noted Ong.

A slower ridership recovery could also impact rail profitability, said Ong, as ComfortDelGro bears fare revenue risk. The company owns nearly 75% of bus and rail operator SBS Transit, which runs the North East Line and Downtown Line.

While some $128 million in subsidies from the Government’s Job Support Scheme (JSS) will be significantly helpful in cushioning the earnings decline, Ong has cut CDG’s earnings per share (EPS) forecast for FY20-22 by 23.6% to factor in higher taxi rental rebates and lower expected ridership for public transportation. Core EPS for December 2020 is now forecasted at 6 cents.

Like much of the economy, ComfortDelGro’s recovery will be gradual, with earnings recovery for the remainder of the year forecasted to be modest.

“While the worst is likely over with ComfortDelGro’s key operating regions emerging from lockdowns, we expect a bumpy road to recovery,” he says.

Without tourism, Ong notes that the resumption of international mass market travel is still “a long way off”.

At home, remote working arrangements remain the default as Singapore reopens post-circuit breaker.

While ComfortDelGro may benefit from potential rail financing policy reform and possible earnings-accretive mergers and acquisitions, it also runs the risk of experiencing faster-than-expected taxi fleet decline and slower ridership recovery.

Shares in ComfortDelGro closed on Wednesday 3 cents higher, or 2.1% up, at $1.48.

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