ComfortDelGro upgraded to Buy by Nomura on dividend and earnings outlook

ComfortDelGro taxi in SingaporeComfortDelGro taxi in Singapore

Nomura upgraded ComfortDelGro to Buy from Neutral, pointing to the dividend outlook, stabilizing taxi earnings, a potential entry into the private-hire-vehicle segment and other catalysts.

“With a stabilising outlook for the taxi segment, we believe the market’s focus will return to dividends,” Nomura said in a note on Wednesday. It noted that at current levels, the stock price implies a 2019 dividend yield of 4.9 percent, above its historical average of 4 percent and its highest since January of 2010.

Additionally, Nomura noted ComfortDelGro was looking to enter the private-hire-vehicle (PHV) business, which the bank called a “solid positive” if it emerges.

“We believe management would have a low-risk approach to this business. While in the long term, taxi demand would continue to decline, PHV growth could help offset it somewhat,” Nomura said. It noted that it believed that with Uber’s exit from the Southeast Asian market, ComfortDelGro’s deal to acquire Uber’s Lion City Rental was “likely off the table.”

But it added that ComfortDelGro could seek a tie-up with upcoming players, such as Go-Jek, Filo or Ryde, noting media reports that the taxi operator was likely in talks with Go-Jek.

Among other catalysts, Nomura noted it was expecting around 26.4 percent growth in the public transport segment earnings before interest and tax (EBIT) on increased Downtown Line (DTL) ridership, which should narrow rail-operating losses. It estimated the DTL would breakeven next year, with an EBIT margin of 3 percent.

Nomura raised its target price to S$2.92 from S$2.12 after increasing its profit after tax and minority interests (PATMI) estimates for 2019-20 by 3-8 percent on a slower decline in the taxi segment and a faster pickup in DTL earnings.

The stock ended up 1.28 percent at S$2.38.