Deutsche Bank upgraded ComfortDelGro to Buy from Hold, saying it’s “on the cusp of a turnaround” amid a new strategy from management.
“Acquisitions worth more than S$130 million in the last six months have convinced us that management is serious about execution. Hence, we forecast S$600 million-S$700 million of investment-capex per annum over the next decade, and an incremental increase in the
dividend payout ratio,” it said.
“Key negatives are diminishing as the acquisition of loss-making Lion City Rental (LCR) is unlikely, and the contraction in its Singapore taxi fleet is starting to reverse. The next few quarters are catalysts as CD’s acquisitions are earnings accretive,” it said.
It tipped aggressive acquisitions and diminishing taxi risks would drive three-year net profit compound annual growth rate (CAGR) of 5 percent, with return on equity set to rise to around 13 percent by 2020 as the company increases dividend payouts. It expected the dividend yield would exceed 6 percent from 2020.
It noted ComfortDelGro indicated the April idle rate for the taxi fleet fell to 1-2 percent and it had placed an order for 200 new Hyundai hybrids, its first in around 18 months; the taxi fleet contraction rate was at 0.7 percent on-month in March, narrowing from a 4.3 percent contraction in the fourth quarter.
It forecast earnings would rise due to the increase in investments and increased its 2018-20 profit after tax and minority interests (PATMI) forecasts by 14.5-26 percent. It noted its PATMI forecast was around 15 percent above consensus.
Deutsche Bank hiked its target price to S$3.00 from S$2.40.
The taxi operator will be releasing its first quarter results on May 11.
ComfortDelGro shares ended Wednesday up 3.08 percent at S$2.34.