SINGAPORE (Feb 15): RHB Research has upgraded ComfortDelGro to “buy” with $2.65 target price given the stock could re-rate further on expected strong profit contribution from new acquisitions, continuing organic growth in public transport business and lack of material rise in competition so far from private hire car players in its taxi business.

ComfortDelGro’s FY18 PATMI came in at $303 million, in line with RHB’s estimate of $307 million. New acquisitions contributed sales of $124.2 million, which accounted for 54% of the revenue increase. Contribution to increase in EBIT was 70% of total increase at $20.7 million.

In a Thursday report, RHB analyst Shekhar Jaiswal says just like in FY18, a significant portion of ComfortDelGro’s FY18 EBIT increase could come from new acquisitions that were undertaken during the later part of 2018.

In addition, the taxi business bucked the trend of q-o-q decline in EBIT in 4Q and delivered $33.5 million of EBIT with a slight margin improvement despite the launch of Go-Jek’s operations.

While the taxi fleet shrunk in 2018, ComfortDelGro aims to maintain the taxi fleet at the current level in 2019, as it replaced older diesel taxis with new hybrid ones. Meanwhile, the taxi fleet idle rate remained sticky at 3%, implying limited switch by taxi drivers to private hire car services.

Despite continuing losses at its rail business, Shekhar notes that ComfortDelGro’s public transport business accounted for 70% of its revenue and 40% of its EBIT.

“With full year contribution from Seletar and Bukit Merah Bus Packages, higher revenue from Australian bus business as well as 4.3% increase in public transport fare from Dec 29 2018, we see public transport business to remain the key growth driver in 2019,” says Shekhar.

As at 11.46am, shares in ComfortDelGro are down 2 cents at $2.41.