SINGAPORE (July 4): ComfortDelGro is expected to post a smaller decline in 2Q profits compared to a year ago, which would mean an improvement in operations, say analysts.

A stronger-than-expected expansion in taxi fleet, and partnership with private ride-hailing companies could be catalysts while regulatory changes could aid its taxi operations.

Inorganic growth acquisitions could also support its growth profile although a pick-up in competitive pressure could lead to further contraction in its taxi fleet.

“With competition ceding, we believe downside risks are limited, coupled with its public transport exposure which is relatively resilient through economic cycles,” says DBS analyst Andy Sim in a Wednesday report.

DBS expects ComfortDelGro’s project operations to improve sequentially in 2H18, before reversing back into growth profile in FY19F.

Although DBS is at the lower end of consensus in terms of earnings forecasts, likely due to a more conservative view on taxi fleet size and rail contribution leading to a marginal contraction in FY18F earnings.

However, DPS is expected to increase marginally on the back of a higher payout ratio, providing yields of 4.6% and supporting the share price.

DBS is upgrading its recommendation to “buy” from “hold”, and a revised target price of $2.59, on the back of bottoming out in taxi fleet contraction in Singapore with potential increase with earnings upside revision from further acquisitions.

“Our target price is revised to $2.59, on the back of a 4% upward adjustment in our earnings forecasts, coupled with revising our valuation to average PE of 18x FY18F/19F earnings,” says Sim.

As at 12.37pm, shares in ComfortDelGro are up 2 cents at $2.32.