ComfortDelGro Corp Ltd Recovery underway, back to net cash November 16, 2020 224

PSR Recommendation: BUY Status: Upgraded
Last Close Price: SGD1.73 Target Price: SGD1.83
  • 3Q20 PATMI below expectations due to lower-than-expected rail ridership and bus-service fees. 9M20 PATMI at 18% of our FY20e forecast.
  • Revenue rebounded S$152mn QoQ to S$816mn. Operating losses narrowed by S$118mn QoQ. There is large operating leverage for Comfort as revenue rebounds. We expect a stronger recovery in the coming quarters.
  • Net cash of S$115mn vs. net debt of S$115mn a year ago.
  • Most restrictions on group gatherings in Singapore will be lifted only in 4Q20. Phase 3 easing should further increase transportation volumes. Upgrade stock from ACCUMULATE to BUY with earnings catalysts expected from this. PATMI for FY20e cut by 50% but FY21e estimate raised by 16%. Accordingly, our DCF TP climbs to S$1.83 from S$1.65. Comfort is our preferred proxy for a recovery in the transportation sector. Unlike air transport, passenger-volume rebounds are more immediate and pronounced with pricing more stable in a regulated industry.

The Positive

+ Heathy cash flows. 3Q20 net cash from operations, excluding grants, was S$167mn (3Q19: S$162mn) and S$383mn for 9M20 (9M19: S$407mn). This returned the company to net cash of S$115.5mn from S$115.3mn net debt in 3Q19.

 

The Negative

– Public transport softer than expected. Revenue improved 12% QoQ to S$640.8mn. Rail ridership was only 55% of pre-Covid levels in January. Another drag was lower bus-service fees from fuel indexation as fuel prices remained depressed.

 

Outlook

We are expecting further improvements in the coming quarters. Considerably larger group gatherings or events in Singapore will only be allowed in 4Q20. Phase 3 should further accelerate ridership in taxis and trains as more religious, social and work activities resume. An area of weakness will be U.K.’s second lockdown curtailing taxi and coach ridership.

 

Upgrade to BUY with higher TP of S$1.83, from S$1.65

We lower FY20e PATMI by 50% but raise FY21e forecast by 16%. Comfort has large market shares in rail, taxi and bus services in Singapore. It is our preferred transport proxy as the lockdown eases in Singapore.

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About the author

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Paul Chew
Head of Research
Phillip Securities Research Pte Ltd

Paul has almost 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.

He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.

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