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RHB keeps ComfortDelGro at 'buy', multiple earnings drivers ahead

The Edge Singapore
The Edge Singapore  • 2 min read
RHB keeps ComfortDelGro at 'buy', multiple earnings drivers ahead
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Shekhar Jaiswal of RHB Bank Singapore has reiterated his "buy" call and $1.65 target price for ComfortDelGro C52 -

(CDG), 

The company's UK unit was recently given contracts worth GBP422 million ($720 million) to run buses in Manchester for five years, with an option to extend for up to another two years.

According to Jaiswal's estimate, assuming the contract value is evenly spread across the five years, the annual contract value would be $144 million.

CDG’s public transport business as a whole now generates a 4% EBIT margin. 

Assuming a 4-8% EBIT margin and a 25% tax rate, he estimates the incremental earnings in FY2025 from these contracts to range between $4.3 million and $8.6 million, which translates to a 1.8 to 3.6% upside to his existing earnings projection for FY2025.

Even without this impending uplift from the UK bus contract, Jaiswal says CDG is poised to enjoy some near-term earnings growth drivers.

See also: Analysts raise target prices for Centurion Corp following healthy 1QFY2024 results

They include higher Singapore rail revenue, continued improvement in its UK public transport revenue, strong Singapore taxi earnings amidst the increase in fares and commission rates, as well as the introduction of a new fee for bookings on the Zig platform.

Improvement in its China taxi business and contributions from recently announced acquisitions will help too, he adds.

In another positive aspect, Singapore is now reviewing the so-called point-to-point (p2p) transport industry structure.

See also: SAC Capital’s optimism intact on Hyphens Pharma following 1QFY2024 results

"We believe that the results of the final review of the p2p transport industry will continue to be positive for CDG," he says.

"In addition, we expect the potential integration of Gojek’s booking with the Zig platform to further drive taxi demand and CDG’s winning of the Seletar bus package in Singapore as additional re-rating catalysts," adds Jaiswal.

In its April 8 note, KGI Research Singapore flags that among the regulatory changes,  taxi operators will see lower operating costs through changes like extending the lifespan of non-electric cabs and reducing inspection frequency for newer taxis. 

"Regulatory tweaks aim to balance the regulatory burden between taxis and private-hire cars," says KGI, which has a target price of $1.57 for the stock.

"While concerns over driver earnings persist, the proposed changes aim to stabilize the transport sector and maintain a balance between taxis and private-hire cars.

"These new standards will bolster ComfortDelGro’s efforts to enhance its Taxi & Private Hire segment in Singapore, aligning with the increasing demand for personal transportation services," adds KGI.

 

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