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Speed bumps and quiet streets ahead for ComfortDelGro

Samantha Chiew
Samantha Chiew • 3 min read
Speed bumps and quiet streets ahead for ComfortDelGro
Analysts are mostly neutral on land transport operator ComfortDelGro (CDG) as the group is expected to experience some headwinds amid the novel coronavirus (CoVid-19) outbreak in Singapore.
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SINGAPORE (Feb 17): Analysts are mostly neutral on land transport operator ComfortDelGro (CDG) as the group is expected to experience some headwinds amid the novel coronavirus (CoVid-19) outbreak in Singapore.

On top of that, CDG on Friday reported its FY2019 earnings, which fell by 12.6% to $265.1 million from $303.3 million a year ago. Revenue was however 2.6% higher y-o-y to $3.9 billion, mainly due to $154.2 million in contribution from new acquisitions.

See: ComfortDelGro posts 12.6% drop in FY19 earnings to $265.1 mil as taxi business continues to slide

The decline in earnings was on the back of higher operating costs, which included provision for impairment in its taxi business.

The group on Feb 13 announced a relief package in excess of $18 million that will be given to cabbies who have been hit by falling demand as a result of the CoVid-19 outbreak.

And, as managing director and group CEO Yang Ban Seng puts it: “I think things will get worse before they get better.”

As it is, DBS Group Research has downgraded its call on CDG to “hold” from “buy” with a lowered target price of $2.26 from $2.45.

In a Monday report, analyst Andy Sim says, “While the impact from CoVid-19 outbreak and taxi rental rebates were within expectations, the impairment provision on its taxi operations and dividend cut threw us off course. We trimmed our FY20F/21F earnings by 6%/5% and expect DPS to trail lower in FY20F.”

“We are making a quick U-turn on this ride which was foolhardy and truly regrettable,” he adds.

Although the impact from CoVid-19 should be temporary, but the group’s cut in dividends and muted growth outlook would be tough for the group’s share price to perform in the near term.

RHB Group Research also has kept its “neutral” call on CDG with a reduced target price of $2.25 from $2.38.

Analyst Shekhar Jaiswal says in a Monday report, “Concerns of the negative impact from CoVid-19 on CDG’s taxi and public transport businesses have lowered share price. Rising operating costs for public transport business – witnessed in 4Q19 – should drag EBIT margins lower, with taxi earnings also remaining weak.”

In 4Q19, CDG reported weak 4Q19 margin for its Singapore public transport business amid the introduction of fixed licence charge related to operations of the Downtown Line as well as elevated costs related to mid-life refurbishments to be undertaken at the North-East Line.

Concurrently, the group reported weak EBIT margins for its overseas public transport business, which the analyst believes is from its UK operations.

“While we expect public transport business to report higher revenue, margins are expected to remain weak in near term,” says Jaiswal.

Similarly, CGS-CIMB Research is holding on it its “hold” recommendation on CDG with a slightly lowered target price of $2.08 from $2.09 previously.

In a Saturday report, lead analyst Ong Khang Chuen says, “We keep our ‘hold’ call due to near-term uncertainties but believe dividend yield of 4.8% is the key support to share price. We believe a better entry point could be at the -1 SD level, or 13.5 times forward P/E ($1.88).”

Overall, drags remain for the group, which includes weaker public transport services margins due to higher repair and maintenance expenses and licence charges for the Downtown Line (DTL), and continued decline in taxi revenue due to a smaller fleet size.

Nonetheless, the key disappointment of CDG’s latest FY2019 results is its lower final dividend of 5.29 cents, compared to 6.15 cents in FY2018.

As at 11.10am, shares in SDG are trading 3.2% or 7 cents lower at $2.11, giving it a 1.8 times FY20 price-to-book ratio, with a dividend yield of 4.4%, according to DBS’ estimates.

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