Why it’s too early to turn positive on ComfortDelGro

Singapore five-dollar note Photo by Leslie Shaffer

It’s too early to turn positive on ComfortDelGro, as the impact of the taxi operator’s acquisitions won’t be felt in the near term, Daiwa said.

“On balance, we advise investors to remain on the side-lines for now, mainly as we think contributions from its M&A activities could be limited in the near term, while management’s new strategy for growth may take time to bear fruit and establish a track record,” Daiwa said in a note last week.

“Moreover, earnings visibility on its taxi business continues to remain poor despite the better operating outlook for the near term,” it said. The Singapore taxi business has been an earnings bugbear for ComfortDelGro amid increased competition and discounts from private-hire car services such as Uber and Grab; Uber’s exit from Southeast Asia is widely expected to help stabilize pricing.

Additionally, the bank pointed to the stock’s more than 10 percent rise since the start of April.

“We think the positives of industry consolidation are adequately priced in, while we see few catalysts that could fundamentally impact earnings positively in the near term,” it said.

ComfortDelGro reported last week that net profit attributable to shareholders for the first quarter fell 19.6 percent on-year to S$66.3 million, due to a year-earlier boost from S$10 million in special dividends. Revenue rose 1.0 percent on-year in the quarter to S$878.8 million.

Daiwa said that was broadly in line with its forecast, although revenue was lower than expected, mainly on accounting changes.

It kept a Hold call with a S$2.23 target price, noting that this year’s expected 4.5 percent dividend yield should support the share price.

The stock ended Monday up 0.43 percent at S$2.34.