• Stay BUY and SGD1.40 TP, 21% upside and 5% 2023F yield. ComfortDelGro should deliver 11% profit growth in 2023, aided by the recoveries in Singapore rail ridership, Australia bus charters, UK coach services, and Singapore and China taxi services. CD’s share price has outperformed the rapidly falling STI in the last month, as investors value its ability to deliver growth despite macroeconomic uncertainties. They also like its ability to sustain higher dividend payouts. The stock is trading at an attractive 2023 P/E of 13x vs its historical mean of 16x.

• Singapore rail ridership and taxi earnings to improve. SBS Transit (SBUS SP, NR), CD’s Singapore public transport subsidiary, is witnessing continuing improvements in rail ridership. The average daily ridership in February was 51% and 38% higher than the ones in Feb 2022 and Feb 2021 (Figure 1). The YTD average daily rail ridership was only 7% below 2019’s levels. We believe this improvement, which should sustain itself during the coming months, will help support the profits from the public transport business. While the taxi fleet in Singapore is on the decline, CD has gradually increased its market leadership position within this segment. Strong demand for taxi services should continue to support driver earnings and enable CD to gradually taper off rental rebates.

• Steady earnings growth. Public transport ridership in Singapore had seen a strong recovery in 2022 as more people returned to work and leisure activities after two years of COVID-19-related restrictions. We expect the public transport services, especially rail services, to witness a strong increase in ridership on higher tourist arrivals in 2H23. CD’s Singapore and China taxi businesses should also benefit from the East Asian nation’s economic reopening. Despite expectations of higher operating costs, the uncertainty over the timing of indexation formulas, and lower bus service fees, we believe CD can deliver c.10% profit growth during 2022-2025.

• Expectations for higher dividends. Despite our estimate of a gradual rise in capex during 2023-2025, we expect CD to deliver a FCF yield of 7.7-9.4% during this period. This, we believe, will enable the company to pay higher dividends. While CD has a policy to pay out at least 50% of PATMI as dividends, we estimate a 65% payout ratio for 2023-2025, which implies yields of 5-6%. Note: Our TP includes a 12% ESG premium (based on our proprietary methodology) over the SGD1.25 FV.

• Key downside risks: i) Losing the Bukit Merah and Jurong West Bus Packages or retaining them at lower-than-estimated service fees, ii) higher-than-estimated operating costs, and iii) weak taxi earnings from a failure to gradually phase out rental rebates.

Source: RHB Research - 15 Mar 2023