• BUY, SGD1.77 TP, 27% upside with c.3% yield. The one-off government support of SGD150 for taxi hirers to offset higher fuel prices, along with support measures from ComfortDelGro, should enable it to sustain a gradual recovery in taxi earnings. CD remains well-placed to maintain its earnings recovery over the next few quarters, as its Singapore units that were impacted by the pandemic gradually return to normalcy. We expect weak 2Q earnings for its China division, and there remains a risk of lower 2022 earnings if the UK’s economic growth declines sharply.

• One-off relief measure for taxi hirers. Yesterday, the Singapore Government announced a SGD1.5bn inflation support package to help households and businesses tackle economic challenges resulting from high inflation. As part of the package, it will provide a SGD150 one-off relief for eligible taxi main hirers and private-hire car drivers in August. This will be in addition to a temporary fuel-related increase in taxi fares that was introduced by CD in April. CD also offers 15% rentals rebates to its taxi hirers until September. This government measure and initiatives already announced by CD should strengthen the sustainability of taxi hirers’ earnings. This, in turn, should help ensuring the gradual recovery of CD’s segmental net profit from its taxi business.

• Small EV leasing contract from DHL. DHL announced that its Singapore unit will invest SGD8m to electrify its fleet over the next five years. The courier company will lease 80 EVs from CD by October. DHL also plans to add 25 more EVs over the next 12 months and install 105 charging points across its service centres. CD’s car rental and leasing (CRL) business, which operated 1,205 vehicles as at end-2021, will lease the EVs to DHL. While the number of EVs offered under the lease is small compared to the overall fleet size of CD’s CRL business, these would be the first EV additions to its fleet. CD’s automotive engineering business will provide maintenance and servicing services for these leased EVs.

• Share price outperforms, reasonable valuations. CD’s share price has outperformed the STI by 5% in last three months amidst a more resilient earnings outlook, despite growing macroeconomic risks. Our DCF-derived SGD1.77 TP implies 17.2x 2023F P/E. While this is tad higher than CD’s 10-year average of c.16x, it seems reasonable, in view of its ongoing earnings recovery. Our TP includes a 12% ESG premium over the SGD1.58 fair value based on our proprietary in-house methodology.

• Key downside risks: i) Continuing decline in taxi fleet size, ii) increased competition from ride-hailing players, c) lower-than-estimated margins for key businesses, d) reinstatement of strict COVID-19 measures, and e) the UK witnessing a sharp decline in economic growth.

Source: RHB Research - 22 Jun 2022