Maybank KE starts ComfortDelGro at Hold amid taxi competition concerns

ComfortDelGro taxi in SingaporeComfortDelGro taxi in Singapore

Maybank KimEng started coverage of transportation player ComfortDelGro at Hold with a S$2.45 target price, saying it likes the business, but the share valuations are “fair.”

“We believe CDG’s land-transport business is highly defensive against heightened competition in the taxi space,” the brokerage said in a note on Sunday. “CDG has ramped up its overseas transport businesses in favorable regulatory and market environments with its excess cash.”

However, the brokerage pointed to some concerns over ComfortDelGro’s taxi operations after it “right-sized” its taxi fleet to 12,000 in Singapore before Uber exited the market.

“Competition from unlisted Grab and Go-Jek is not yet as fierce, as the two unicorns are evolving their businesses beyond ride-hailing and/or focusing on larger-population markets,” such as Thailand, Indonesia and the Philippines, the note said.

However, “the latest entry of unlisted Go-Jek is likely to have some ripple impact on Grab and CDG. Even without escalation, we think the perception of increased competition could dampen sentiment on the stock.

It estimated a 50 basis point reduction in taxi earnings before interest and tax (EBIT) margins would lower its 2019 core profit forecast and its target price by 1 percent each. It said it assumed a negative 5 percent compound annual growth rate (CAGR) for taxi EBIT over 2018-21.

ComfortDelGro has also been diversifying its revenue sources away from Singapore, with 59 percent of its 2018 revenue from the city-state, and the rest overseas, compared with 64 percent in 2016, the brokerage said, noting the company has been investing in companies which allow it majority control overseas. The U.K. and Australia account for 88 percent of overseas revenue, it said.

Last month, ComfortDelGro reported its 2018 net profit rose 0.6 percent on-year to S$303.3 million on contributions from new acquisitions.

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