The overall outlook is positive. Revenues will be lifted by the full year contribution from acquisitions. Public Transport Services is expected to continue driving earnings growth in FY19 and assist in the narrowing the losses at DTL. Figure 1 summarizes the list of acquisitions conducted in the last 12 months. CD has a strong balance sheet with a net cash position.
Figure 1: Summary of acquisitions
The results of the public consultation regarding the proposal of two license classes – street-hail and ride-hail service operator license (SSOL/RSOL) – is still under deliberation. If these two licenses come to pass, it would mean that ride-hail operators, Grab and GoJek can apply for the SSOL, which will require them to maintain a fleet; but also allows their drivers to take street hail jobs like taxi operators.
In 1Q19, CD rolled out several initiatives/schemes to tackle the various pain points faced by the industry:
We view these initiatives favourably as CD continues to reposition the business to remain competitive and maintain market share.
In previous years, the management made a conscious decision to delay the replacement of taxi fleet due to weakening revenues. CD started ordering more taxis to replenish the fleet size in 2018 with taxis scheduled to be delivered periodically. Lower COEs at the start of 2019 prompted the management to accelerate the pace of replacing the taxis. Diesel taxis with higher COE (S$40k) were replaced with hybrid taxis with lower COEs (S$20k). CD was able to capitalise on the lower COEs while fulfilling the demand for hybrid taxis, which allowed CD to earn higher rental commanded by hybrids. The company received 300 taxis in 1Q19 and will receive another 300 taxis in 2Q19. The average age of taxis is currently 19 months.
Figure 2 summaries the performance and outlook for the key segments and geographies
Maintain ACCUMULATE with an unchanged target price of $2.72
We maintain our accumulate call with an unchanged target price of S$2.72. Our target price gives an implied FY19e forward P/E multiple of 16.8 times.