SINGAPORE (Aug 14): Analysts say continued weakness from ComfortDelGro’s taxi business is putting the brakes on the transport operator’s earnings growth.
Faced with increasing competition from private hire car service providers Grab and Uber, ComfortDelGro saw the idle rate of its taxi fleet rise to 5% in 2Q17, from 3.5% in the preceding quarter.
According to RHB Research, CDG’s taxi fleet shrank 7.5% to 15,556 units at the end of June 2017, compared to end 2016.
Led by an 11% decline in taxi revenue, total group revenue slipped 3.4% to $987.2 million in 2Q17, even as earnings fell 6.8% to $79.4 million.
See: ComfortDelGro 2Q earnings fall 6.8% to $79.4 mil
“While we like ComfortDelGro’s resilience and geographical diversification, we are projecting that growth trajectory to take a step back to register a dip compared [to] its average rate of close to 6% seen in the past 5 years, particularly as a result of its shrinking taxi fleet,” says DBS Group Research analyst Andy Sim in a Monday report.
DBS is cutting CDG’s earnings forecast in FY17F and 18F by 2% and 8%, respectively.
As a result, the research house is keeping its “hold” call on CDG, but slashing its target price to $2.33, from $2.78 previously.
CIMB Research’s lead analyst Cezzane See notes that CDG expects a slight drop in the number of private car drivers ahead, following the implementation of the Private Hire Car Driver Vocational Licence (PVDL) in July.
However, See says that “competition from Uber and Grab remains stiff.”
“And there is a likelihood such players could entice ComfortDelGro’s taxi drivers with benefits, leading to continual pressure on ComfortDelGro’s taxi driver count moving ahead,” she adds.
CIMB is keeping its “hold” call on CDG but cutting its target price to $2.46, from $2.78 previously.
The research house is lowering CDG’s core EPS forecast for FY17-19F by 7.0-7.6% on the back of lower taxi profits.
“With the lack of earnings growth, we believe the share price will remain flattish in the near term,” See says.
Meanwhile, RHB Research is lowering its profit forecasts for CDG in FY17-19F by 7-11% on the back of expectations of further decline in its taxi fleet size and elevated idle rate.
As a result, RHB is lowering its target price to $2.60, from $3.00 previously.
However, RHB analyst Shekhar Jaiswal is keeping his “buy” call on CDG.
“We continue to like ComfortDelGro for its strong free cash flow (FCF) generation, the ability to undertake inorganic growth aided by a net cash balance sheet, and its expected gradual rise in dividend payout translating into 4.4-5.4% yields,” he says in a report on Monday.
Further, Jaiswal says ComfortDelGro’s earnings from FY19F could be lifted if it wins the tender for the Thomson-East Coast Line (TEL).
As at 3.51pm, shares of ComfortDelGro are trading 3 cents lower at $2.28.