SINGAPORE (Nov 12): RHB Research is maintaining ComfortDelGro at "hold" given rising competition from Singapore private hire car (PHC) players could keep its share price in check in the near term.

In 9M ended Sept, ComfortDelGro reported profit of $220 million, making up 67% of RHB’s estimates. Higher costs for staff, fuel and repair and lower-than-estimated profit from taxi were key reasons for the earnings miss, says RHB.

The $76.2 million y-o-y increase in 3Q18 revenue was aided by $91.4 million of increase in public transport revenue which was offset by $16.6 million decline in taxi revenue. New business acquisitions accounted for 45% of y-o-y increase in revenue.

“With commencement of the Bukit Merah Bus Package in 4Q18 and contribution from recent acquisition of bus businesses, public transport should continue to drive revenue growth in 2019,” says analyst Shekhar Jaiswal.

New acquisitions only accounted for $2 million of $113 million operating profit in 3Q18 but ComfortDelGro is confident this contribution will increase in subsequent quarters.

The group is also confident about its taxi business, says Jaiswal. The company added 156 new taxis in Singapore during 3Q18 and is looking to another 100 taxis in 4Q18. ComfortDelGro has seen 8% y-o-y increase in taxi bookings while taxi fleet utilisation rate is only slightly below 98%.

ComfortDelGro says it has not seen any negative impact from Grab’s recently announced incentive plan for PHC drivers. ComfortDelGro is also unaware of Go-Jek’s strategy for Singapore but is confident it will survive any rise in competition.

While the North East Line (NEL) was profitable, losses at Downtown Line (DTL) led to ComfortDelGro reporting an overall loss for rail in 3Q18. Despite the 4.3% increase in fare from Dec 29, ComfortDelGro expects DTL to achieve breakeven only when daily ridership hits 600,000-650,000 amid rising maintenance cost at NEL.

RHB is lowering 2018 profit by 6.6% to account for lower profit from taxi. Target price of $2.35 implies 15 times 2019F earnings, which is below ComfortDelGro’s five-year average forward P/E of 16.5 times.

Year to date, shares in ComfortDelGro are up 9.5% at $2.21.