DBS Group Research has maintained a “buy” rating on ComfortDelGro with a raised target price of $1.96, compared to the previous target price of $1.63. 

Analyst Andy Sim called the September 3 price of $1.51 “unjustified”, saying the stock was an “attractive ride” at -2 standard deviation (SD) historical mean and that investors should look beyond FY20.

Furthermore, Sim expects the consolidation of the point-to-point (P2P) industry as smaller private rental car fleet providers exit the market, bringing a balance to the P2P supply-demand dynamics.

He also says the Phase 3 re-opening could be another near-term catalyst, as people are now moving about more, according to tracking mobility data.

Sim elaborated that mobility figures in residential areas should drop while those in transit, retail & recreation and workplaces should increase, as seen in Phase 2, and he also expects to see more workers returning to offices, aiding in commuting, even though the practice of working-from-home may continue.

He sees that confidence is improving given total and community cases are on the downtrend, the public tends to heed the authorities call relatively closely, and we should see sudden shifts in mobility movements with the easing of measures, as seen in the past from Phase 1 to Phase 2. 

Specifically, he also noted that taxi mileage was recovering, which means, there would be a reduction in taxi rental rebates. Based on the latest available statistics from the Land Transport Authority (LTA), daily taxi mileage has improved since the Circuit Breaker period. 

As of June, the average daily mileage for two-shift taxis stood at 153km, which is about 40% below the average of 250km mileage per day prior to COVID. This is an improvement from the low seen during the Circuit Breaker, which saw an average mileage of only 108km and 102km per day, respectively. This was about 60% below the average.

Figures for July and August are currently not available, but based on anecdotal observations and statistics from Google mobility, he infers that mileage clocked and takings should have improved further from June. 

As such, while he expects rental rebates to continue to be extended beyond September, it will be at a lower rate, as per the trend seen in recent months. 

Full rental waivers were given for the months of April and May (during the Circuit Breaker period), followed by gradual step downs from 50% to 30% from June to September. 

Furthermore, the fleet of private hire cars have also shrunk, posing less of a threat to the taxi industry. 

Since the outbreak of COVID-19, the total private rental car fleet has also contracted alongside the same trend seen for taxis. As of July 2020, private rental car fleet size stood at 73,172, down 6% from the high in Feb 2020. 

According to earlier media reports, an estimated 20,000 cars are un-hired and sitting idle.

Given the headwinds of low ridership in the past few months brought about by COVID, Sim expects the financial impact on car rental companies to be deep and wide. ‘A number will fail and only the stronger companies will survive. This would therefore drive total private rental car fleet numbers down to a more sustainable level.’ Sim foresees. 

As at 2.43pm, shares of ComfortDelGro were trading at $1.52, with an FY20 price-to-book ratio of 1.3 and a dividend yield of 1%.