SINGAPORE (Aug 15): ComfortDelGro Corporation may have posted a positive set of financial results for the 2Q19 ended June. But a peek under the hood reveals that the land transport conglomerate has not been firing on all cylinders.

The group saw its earnings grow 1.2% to $75.9 million during the quarter, even as revenue rose 4.2% to $980.8 million.

See: ComfortDelGro posts 1.2% rise in 2Q earnings to $75.9 mil on acquisition-led revenue increase

However, ComfortDelGro’s improved top and bottom lines belie the fact that not all its business divisions are doing well.

In particular, the company’s taxi business continues to suffer from intensifying competition from ride-hailing operators.

As a result, taxi revenue contribution fell 8.3% y-o-y to $166.9 million during the quarter due to a smaller operating fleet.

On the other hand, ComfortDelGro’s public transport services, and inspection and testing services businesses did better.

Their revenue contributions were up 7.9% and 1.6% y-o-y, respectively, to $723.8 million and $25.7 million during the quarter.

The uneven performance of ComfortDelGro’s business divisions has prompted analysts to lower their earnings forecast for the company.

CGS-CIMB Research analyst Cezzane See cut her core earnings per share forecasts to 15 cents in FY19, 15 cents in FY20 and 16 cents in FY21. These represent a reduction from between 1.9% to 3.7%.

“Management said competition for drivers from ride-hailing firms heated up in 2Q19. Ride-hailing firms were likely gearing up ahead of the passing of the new Point-to-Point (P2P) Passenger Transport Industry Bill, in our view,” See says in a Wednesday report.

Maybank Kim Eng Research analyst Luis Hilado lowered his FY19 forecast for earnings before interest and tax (EBIT) margin to decline to 11.3% this year, from 11.5% in FY2018.

The way Hilado sees it, competition could continue to heat up in Singapore’s taxi market. “But there is room for ComfortDelGro to accept lower margins to boost driver retention rates in order to maximize its fleet,” he adds.

Similarly, RHB Research analyst Shekhar Jaiswal slashed his profit after tax and minority interests (PATMI) estimates for FY19 to FY21 by between 3.5% and 6% to account for higher operating costs and lower taxi revenue.

According to Jaiswal, most of the decline in taxi revenue contribution came from ComfortDelGro’s local operations.

The reasons are several: a loss of drivers to ride-hailing players, a rise in fleet idle rate to 4% from 2.5%, and delays in replacing older taxis with newer hybrid cars, he says.

UOB Kay Hian analyst Lucas Teng reckons that the taxi business will still face challenges from the private hires, though the decline in operating profits looks to be stabilising.

Still, ComfortDelGro’s public transport services business could continue to support its prospects ahead.

Jaiswal says near-term revenue growth will be driven by higher bus and rail revenue from Singapore and contributions from acquisitions undertaken in Australia.

In particular, the potential synergies from integrating its new Australian business, such as IT processes, have yet to be reaped, according to See of CGS-CIMB.

The company’s rail operations could set to benefit from a fare hike for this year, pending under consideration by the authorities, says UOB Kay Hian’s Teng.

This, however, could be offset by higher maintenance costs at the North-East Line, which is into its mid-life cycle, he notes.

Meanwhile, DBS Group Research is maintaining its earnings forecasts on ComfortDelGro, but says its share price is “not compelling” at this point.

In a flash note on Wednesday, DBS analyst Andy Sim notes that shares in ComfortDelGro are trading at price-to-earnings ratios of 18 times for FY19 and 17.4 times for FY20, which are around the company’s 5-year historical average.

Overall, UOB Kay Hian and CGS-CIMB are keeping their “buy” calls with lower target prices of $2.95 and $2.78, respectively.

RHB, Maybank Kim Eng and DBS are keeping their “neutral” and “hold” ratings and have target prices of $2.62, $2.76 and $2.59, respectively.

Shares in ComfortDelGro closed 2 cents higher at $2.53 on Thursday.