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Simons Trading Research

Author: simonsg   |   Latest post: Tue, 13 Dec 2022, 10:52 AM

 

ComfortDelGro - Sequential Improvement Continues; BUY

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  • ComfortDelGro’s 1H22 core profit was slightly below our estimate. The one-off gain from the sale of its Alperton property in London was paid to investors as special dividends.
  • While we remain upbeat on its earnings recovery, there could be a near-term overhang to ComfortDelGro's share price overhang as investors assess:
    1. The impact of the amended service fee from 1 Sep onwards, for five public bus contracts in Singapore; and
    2. whether ComfortDelGro extends the taxi rental rebates beyond end-Sep 2022.
  • BUY, new S$1.75 target price from S$1.77, 20% upside with ~3% yield.

ComfortDelGro's 1H22 Core Profit Was a Tad Below Expectations, But Operating Profit Continued to Improve

  • ComfortDelGro (SGX:C52) reported 1H22 revenue of S$1.8bn (+7% y-o-y, 50% of our full-year estimate) and net profit of S$119m (+30% y-o-y, 61% of our FY22 projection). However, net profit included a one off gain of S$37.2m (post-tax gain of S$30.5m) from the disposal of a property in London. Excluding this gain, core net profit of S$88m (-3% y-o-y) accounted for 46% of our full-year estimate.
  • Nevertheless, the operating metrics continued to improve, as EBIT (excluding the one off gain and government relief) increased 68% y-o-y to S$51m – aided by improving economic activity in Singapore and the UK as COVID-19 related restrictions have been relaxed.

A Surprise Special Dividend for Investors

  • ComfortDelGro announced an interim dividend of 2.85 cents, which implies a payout ratio of 70% excluding the exceptional gain from the sale of the Alperton property in London.
  • On top of that, the one-off gain from the sale of the London property was paid to investors as 1.41 cents of a special dividend.

Tweaking Earnings Forecasts; ComfortDelGro's Valuations Are Still Reasonable

  • We have lowered our 2022-2024F profits forecast for ComfortDelGro by 2-4%. Our DCF-derived S$1.75 target price implies 17.7x 2023F P/E. While this is higher than ComfortDelGro’s 10-year average of ~16x, it seems reasonable – in view of its ongoing earnings recovery.
  • ComfortDelGro's share price is trading at 14.7x 2023F P/E. Our target price also includes a 12% ESG premium over the S$1.56 fair value, based on our proprietary in-house methodology.
  • Downside risks:
    • Extension of rental rebates to Singapore taxi drivers beyond Sep 2022;
    • continuing decline in its taxi fleet size;
    • lower-than-estimated Singapore bus revenue amidst amended bus contracts;
    • lower margins for key businesses; and
    • the UK witnessing a sharp decline in economic growth.

Source: RHB Invest Research - 15 Aug 2022

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Chart Stock Name Last Change Volume 
ComfortDelGro 1.20 0.00 (0.00%) 6,321,800 

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