ComfortDelGro Corp Ltd: Demand for Taxis is returning June 8, 2018 3056

PSR Recommendation: ACCUMULATE Status: Maintained
Target Price: SGD2.69
  • The worst appears to be over for Taxi business, signalled by growth in bookings and capex for new hybrid taxis
  • Termination of strategic agreement with Uber’s LCR
  • Outlook for Rail is positive, with narrowing of DTL losses driven by ridership growth
  • Maintain Accumulate; higher target price of $2.69 (previously $2.48)

What is the news?

  • ComfortDelGro Taxi announced an uptick in bookings made through its call centre and phone app for the first five months of 2018. Taxi bookings grew almost 9% YoY for the month of May – the biggest YoY jump since September 2014. The recent growth in bookings was attributed to the exit of Uber and ComfortDelGro promotions given to passengers. The 4M-YTD bookings growth was not disclosed.
  • Soon after the purchase of 200 new hybrid Hyundai Ioniq taxis in early May, ComfortDelGro called for a tender to supply 500 more hybrid taxis. The tender has closed on May 31.
  • ComfortDelGro announced the termination of its strategic agreement with Uber, following the exit of Uber from the region. ComfortDelGro will no longer be acquiring the 51% stake in Lion City Holdings Pte Ltd, which operates Lion City Rentals (LCR), as the basis for the partnership is no longer relevant. Nonetheless, ComfortDelGro still maintains its intention to have a stake in the private hire vehicle (PHV) space.

How do we view this?

The Positives

  • Purchase of new taxis and bookings growth are signalling the worst is over. The 200 taxis purchased was the first capex in 1.5 years for new taxis. The 700 taxis (200 already purchased and 500 from tender) represents an additional +5.5% growth to the Comfort and CityCab fleet of 12,687 taxis as at end-March.

The Negatives

  • ComfortDelGro’s involvement in the PHV space would be asset-heavy, by owning the cars and leasing them out. Nonetheless, an asset-heavy model would leverage on the Group’s core competency of fleet management and also bring about larger operational scale for the Automotive Engineering Services business. We think it could be possible for ComfortDelGro to explore buying Uber’s unhired cars that have been put up for sale in the used-car market recently, in anticipation of its rumoured partnership with Go-Jek.

Outlook

The outlook is positive and improving. We discuss in our Land Transport sector report (8 June) the positive industry restructuring (Uber’s exit from the market) and regulatory action coming into effect which levels the playing field (deadline for attaining Private Hire Car Driver’s Vocational Licence). The purchase of new taxis and bookings growth are signalling the worst is over.

At the same time, we are confident of the narrowing of Downtown Line (DTL) losses, as ridership ramps up (discussed overleaf). This should positively mitigate the impact from the transition of North East Line (NEL) and Sengkang LRT and Punggol LRT (SPLRT) to the new rail financing framework (NRFF), which has an EBIT margin cap of 5%.

Maintain Accumulate; higher target price of $2.69 (previously $2.48)

We have tweaked our assumptions for Taxi revenue and capex, as well as Rail ridership. Our FY18e/FY19e PATMI is now +2.3%/+5.3% from previous estimates. Our target price gives an implied FY18e forward P/E multiple of 18.9 times. The 10.4 cents full year dividend is sustainable, supported by positive free cash flow.

Rail Outlook

  • Past ridership growth for SBS Transit’s Rail segment were attributable to DTL

Noticeable spikes in ridership were due to the commencement of service for DTL1, DTL2 and DTL3 in December 2013, December 2015 and October 2017 respectively.

  • Opening of new lines has shown sustainable higher ridership, with propensity for ramp-up

Each spike in ridership has been sustainable, indicating an immediate change in travel pattern by commuters; as opposed to a novelty-effect of commuters experimenting on the new line. In addition, there has been a ramp-up in ridership, suggesting a gradual adoption as more commuters embrace the new transport infrastructure.

  • Average daily ridership for SBS Transit’s Rail segment to achieve 1.2 million by end-2018

DTL had 431k average daily ridership in 1Q 2018 and DTL is expected to achieve a stabilised average daily ridership of at least 500k by the end-2018. As such, we estimate that SBS Transit should achieve total average daily ridership (attributable to NEL, DTL and SPLRT) of 1.2 million by end-2018.

Figure 1: Monthly average daily ridership for combined NEL, DTL and SPLRT*, as at April 2018

Source: CEIC, SBS Transit, PSR

*NEL: North East Line, DTL: Downtown Line, SPLRT: Sengkang-Punggol LRT

Important Information

This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.

By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.

The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.

Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.

This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.

Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.

Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.

Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.

To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.

The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.

This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.

This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.

IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE

Where the report contains research analyses or reports from a foreign research house, please note:

  1. recipients of the analyses or reports are to contact Phillip Securities Research (and not the relevant foreign research house) in Singapore at 250 North Bridge Road, #06-00 Raffles City Tower, Singapore 179101, telephone number +65 6533 6001, in respect of any matters arising from, or in connection with, the analyses or reports; and
  2. to the extent that the analyses or reports are delivered to and intended to be received by any person in Singapore who is not an accredited investor, expert investor or institutional investor, Phillip Securities Research accepts legal responsibility for the contents of the analyses or reports.
Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

About the author

Profile photo of Richard Leow

Richard Leow
Research Analyst
Phillip Securities Research Pte Ltd

Richard covers the Transport Sector and Industrial REITs. He graduated with a Master of Science in Applied Finance from the Singapore Management University. He holds the CFTe and FRM certifications and is a CFA charterholder.

He was ranked #2 Top Stock Picker (Asia) for Real Estate Investment Trusts in the 2018 Thomson Reuters Analyst Awards, and ranked #2 Top Stock Picker (Singapore) for Resources & Infrastructure in the 2016 Thomson Reuters Analyst Awards.

Get access to all the latest market news, reports, technical analysis
by signing up for a free account today!