ComfortDelGro upgraded to Buy by RHB as new acquisitions boost earnings

Singapore street scene with taxis; taken August 2018.Singapore street scene with taxis; taken August 2018.

RHB upgraded ComfortDelGro to Buy from Neutral after the transportation company’s taxi business showed surprise resilience and as the public transportation business’ contribution grew.

The brokerage raised its target price to S$2.65 from S$2.35.

Despite the share’s around 11 percent rise so far this year, “we believe it could re-rate further amidst expectations of strong profit contribution from new acquisitions, continuing organic growth in public transport business and lack of material rise in competition so far from private hire car players in its taxi business,” RHB said in a note on Thursday.

It tipped that ComfortDelGro could post 12 percent profit growth for 2019.

ComfortDelGro reported on Wednesday that its 2018 net profit rose 0.6 percent on-year to S$303.3 million on contributions from new acquisitions. That beat some analysts’ forecasts.

Revenue for the year ended 31 December increased 6.4 percent on-year to S$3.81 billion, with new acquisitions in late 2017 and 2018 accounting for S$124.2 million of the revenue increase, ComfortDelGro said.

RHB said the results were in line with its forecast for net profit of S$307 million, but the resilience of the taxi business was a surprise as it snapped the segment’s trend of on-quarter declines in earnings before interest and tax (EBIT) to deliver S$33.5 million in EBIT, flat on-quarter.

“This was despite the launch of Go-Jek’s operations in Singapore,” RHB said, noting CDG received 900 hybrid taxis last year and will take delivery of 600 more this year.

“While the taxi fleet shrunk in 2018, CD aims to maintain the taxi fleet at the current level in 2019, as It replaced older diesel taxis with new hybrid ones. The taxi fleet idle rate remained sticky at 3 percent, implying limited switch by taxi drivers to private hire car services,” RHB said.

Singapore generally has a shortage of professional drivers, with ride-hailing, taxi, and e-commerce delivery companies chasing a limited pool of workers.

RHB added that the public transport business was likely to remain a key growth driver, with contributions from the new Seletar and Bukit Merah Bus Packages, higher revenue from the Australian bus business and a public-transport fare increase in December.

The stock was up 1.68 percent at S$2.42 at 11:59 A.M. SGT.

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