SINGAPORE (Apr 3): RHB Securities is staying positive on ComfortDelGro’s growth in the public transportation sector but after delivering 21% YTD returns, the stock now seems fairly priced at $2.59.

While CD’s dividend yield of 4% is still above the 10-year bond yield of 2.1%, RHB says this has fallen a tad below the STI’s 4.1% dividend yield.

“We deem it difficult for CD to continue outperforming the STI, as the stock is trading above +1SD from its 5-year mean P/E of 15.4x,” says RHB.

“Investors could consider buying CD again, if the share price drops below $2.50,” adds RHB which should translate into 2% upside with 4% FY19F yield.

In a Wednesday report, analyst Shekhar Jaiswal expects CD’s public transport business to continue to be the key growth driver in the near term – thanks to organic growth in Singapore and contributions from acquisitions in Australia.

While EBIT margins have been on a decline in Australia, CD’s new acquisitions offer margins that are higher than the group’s consolidated EBIT margins of 12-13%.

And with negligible downside risk for its bus business in Singapore, the reduction in losses from its rail business could support higher earnings growth over the next 2-3 years.

CD is also looking to replace older diesel taxis with new hybrid ones, which fetch a higher average daily rental rate vs the taxis that are being phased out.

“This should translate into improved taxi earnings – assuming no sharp rise in competition from ride-hailing players,” says Shekhar adding that Gojek is not expected to have a material impact on CD’s taxi business so far.

At comfortable 30% net gearing, CD could get access to additional $780 million of funding. This compares with $479 million worth of acquisitions it undertook in 2018.

“While we moderate 2019-2021 earnings estimates to account for slower improvement in taxi earnings, we maintain that earnings-accretive acquisitions and higher-than-estimated improvements in its taxi business offer near-term upside risks,” says Shekhar.

As at 4.17pm, shares in CD are trading 2 cents lower at $2.58 or 16 times FY20F.