• Maintain BUY with new SGD1.65 TP from SGD 1.80, 40% upside and c.5% yield. ComfortDelGro’s extension of the 15% daily rental waiver for Singapore taxi drivers until 31 Mar, while maintaining the commission fees, puts a damper on our earlier expectations of a complete waiver removal by end-2022. Its public transport business’ inflationary cost pressure in 3Q22 is expected to extend into early 2023. Despite lowering 2022F-2024F earnings 5-9%, we still like CD’s undemanding valuation, strong FCF generation capability, and potentially higher dividend payout.

• Extension of taxi rental waiver. In Dec 2022, CD announced that it extended the daily rental waiver of 15% for Singapore taxi drivers until 31 Mar 2023. When it extended the rental waiver to end-2022, the group announced an increase in the commission rate for call bookings to 5% from 4%. This was expected to partially help offset the extension of the rental waiver. However, the latest extension did not come with any changes to commission fees. This has led to a downward revision to our taxi earnings estimates for 2023.

• Margin pressure for public transport business. CD reported a sharp decline in its public transport’s EBIT in 3Q22 due to weakness in its overseas public transport operations. The UK public transport business reported higher operating costs as well as a mismatch in the timing and correlation of contract cost indexation. The group indicated that the timing mismatch could persist in 4Q22 as well. We are taking the opportunity to lower public transport margin for 4Q22 and the early part of 2023. In 2021, five of Singapore's bus contracts were extended at lower service fees, which came into effect on 1 Sep 2022. The recent extension of CD’s Sydney bus contract came in with lower margin. In Singapore, Bukit Merah and Jurong West Bus Packages, which are currently operated by CD’s wholly owned subsidiary, have been put up for tender by the Land Transport Authority. While our base case is for the group to retain the bus packages, there remains a risk that the margin could come under pressure. Our estimates have yet to reflect this scenario.

• Unchanged investment thesis. CD’s Singapore taxi service should see elevated demand and its public transport, higher ridership, especially now that China has reopened, resulting in higher tourist inflow. The group’s net cash balance sheet and strong FCF generation could mean higher dividends. The stock is trading at a compelling valuation, with a forward P/E that is well below its 10-year average. Our TP includes a 12% ESG premium over the DCF-derived SGD1.47 fair value.

Source: RHB Research - 13 Jan 2023