ComfortDelGro upgraded to Add by CGS-CIMB on earnings recovery outlook

ComfortDelGro taxiComfortDelGro taxi

CGS-CIMB upgraded ComfortDelGro to Add from Hold on expectations of higher earnings amid profit contributions from new acquisitions, a higher growth trajectory in the taxi fleet and growing bus and rail operations.

It noted that the transportation company has made S$282 million worth of acquisitions so far this year, including the A$110 million purchase of Australia-based FCL Holdings, which manages eight bus depots and operates a fleet of 220 buses in New South Wales, Australia.

The year-to-date acquisitions have already contributed S$20 million to second quarter revenue, it added.

“We believe more acquisitions are in the pipeline with targets in CD’s operating markets (Singapore, Australia, U.K. and China),” CGS-CIMB said in a note on Friday.

The brokerage raised its 2018-20 net profit forecasts by 2.6 percent to 11.9 percent, with acquisition-related earnings contributing 1.7 percent to 4.0 percent to the revised forecasts. It also raised its target price to S$2.75 from S$2.37.

It projected core net profit would grow by 1.9 percent and 10 percent respectively in 2018 and 2019 amid the taxi recovery and inorganic growth from acquisitions.

It also pointed to potential growth ahead for ComfortDelGro’s taxi operations, noting that it will be taking delivery of 200 new hybrid taxis by the end of August, with orders for another 1,000 expected by 2019.

“Post the Grab-Uber merger amid lessened competitive pressure from the Private-Hire Car (PHC) segment, we think CD’s taxi fleet is set for a return to growth in the second half of 2018 and could scale back up to c.13,000, net of deregistered taxis, by end-December 2018, in our forecasts,” CGS-CIMB said.

The brokerage said second-quarter earnings were a “decent set of results” in line with its forecasts, with net profit at 49 percent of its full-year forecast.

ComfortDelGro reported on Friday that its second quarter net profit fell 5.5 percent on-year to S$75.0 million amid higher operating costs, in part due to higher headcount. Revenue rose 5.4 percent in the quarter to S$941.1 million on contributions from new acquisitions related to the company’s “aggressive expansionary policy” and improvement in the underlying businesses, ComfortDelGro said in a filing to SGX after the market close on Friday.

The brokerage said it expected ComfortDelGro to maintain an around 75 percent dividend payout level for the forecast period, which would imply a dividend yield of 4.4 percent to 4.9 percent over 2018-2020.

The “share price trended down in 2017 following the sharp erosion in its taxi earnings but we think CD is now poised for strong earnings
growth recovery ahead that could lend support to its price momentum,” CGS-CIMB said.

The stock was up 1.70 percent at S$2.39 at 3:53 P.M. SGT on Tuesday.

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