ComfortDelGro due a re-rating as worst over for taxis, Credit Suisse says

ComfortDelGro taxi in SingaporeComfortDelGro taxi in Singapore

The taxi competition overhang in Singapore has cleared, with shares of ComfortDelGro due a re-rating higher, Credit Suisse said in a note last week.

“Our view remains that the worst of competition is behind us,” Credit Suisse said.

It noted that ride-sharing service Grab recently said its next wave of development “has to be sustainable at its core,” and that it is unlikely to return to disruptive “cash burn” days. Competitor Go-Jek is likely to take a partnership approach to entering Singapore’s market, with ComfortDelGro its most likely partner, it said.

Additionally, Credit Suisse noted that the larger issue for the private car industry was the lack of drivers, with 34,000 drivers still unlicensed ahead of an end-June deadline, “constraining the timeliness and sufficiency of any competitive threat from new entrants.”

The bank also noted that ridership on ComfortDelGro’s Downtown Line has seen strong growth, beating expectations with a 76 percent on-year increase in average daily ridership to 431,000 in the first quarter.

“We expect higher ridership and revenue at the DTL to be a key driver for CD’s earnings growth,” the note said.

The stock is trading at a price-to-earnings ratio of 16.1 times on 2018 earnings and 14.9 times 2019 earnings, it noted. That compares with its average multiple of 17 times for the last five years, despite taxi disruption concerns starting in 2015, it said, asking, but not answering whether the stock should trade up to the 20 times implied by its target price.

But it added, that with a “high degree of certainty” on a 6.6 percent earnings compound annual growth rate (CAGR) to 2020, an “attractive” 5.1 percent dividend yield and the taxi overhang cleared, a higher valuation multiple and a lower risk profile was justified.

It rated the stock at Outperform with a S$3.21 target price.

The stock ended Friday up 1.63 percent at S$2.50.

 

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