DBS: ComfortDelGro share price ‘unjustifiably low’

ComfortDelGro taxiComfortDelGro taxi

ComfortDelGro’s share price seems “unjustifiably low” as earnings are on a recovery trajectory after the taxi, bus, rail and fleet operator was badly hit by the Covid-19 pandemic, DBS said in a research note Monday.

New Covid cases appear to be under control and mobility appears to trending toward normalisation, as more people are moving now than during Singapore’s Circuit Breaker periods last year, DBS said.

Last week, ComfortDelGro reported its first half swung to a net profit of S$91 million from a year-ago loss of S$6.6 million as global economic activity gradually picked up amid the ongoing pandemic, and all key segments posted growth.

DBS pointed to the high proportion of vaccination in Singapore’s population — at 76 percent fully vaccinated according to government data Tuesday — as a spur to improve rail ridership in the second half of this year. The bank forecasts second half daily average ridership to rise around 8 percent from the first half.

“However, the improvement could be offset by a weaker Australian business given Australia’s zero Covid-19 stance and the restrictions implemented,” DBS said, projecting this year’s public transport service revenue would rise 8.4 percent on-year to S$2.78 billion.

For the taxi business, DBS projected 2021 taxi revenue would rise around 10 percent on-year amid lower rental waivers in the second half, although tapering government relief and a poorer performance in China, where Covid cases are rising, could dampen the segment’s results.

DBS lowered its 2021 and 2022 earnings forecast by 29 percent and 18 percent respectively on expectations of a more protracted recovery and the tapering of government support.

Ride-hailing competition

DBS added that ride-hailing companies are seeking initial public offerings (IPOs), potentially signaling the competition’s cash-burn could be ending.

“With Grab set to list via a SPAC in the U.S. and GoTo possibly looking to IPO soon, CDG’s private-hire competitors may be subject to increased scrutiny which could end the aggressive promotions and competition,” DBS said.

DBS lowered its target price slightly to S$1.94 from S$1.99 previously, based on 1.53 times 2021 price-to-book-value, compared with the shares currently trading at 1.3 times price-to-book, with both valuations below its historical average. The bank kept a Buy call on the shares.

On Monday, the company said it is seeking an initial public offering (IPO) on the Australian Securities Exchange (ASX) for its wholly owned subsidiary ComfortDelGro Corp. Australia (CDC).

Shares of ComfortDelGro tumbled 4.19 percent to S$1.60 by 4:07 p.m. SGT; the Straits Times Index was down 0.94 percent at 4:13 p.m. SGT.