Highlights

ComfortDelGro Corp Ltd - Demand for Taxis Is Returning

Date: 08/06/2018

Source  :  PHILLIP CAPITAL
Stock  :  ComfortDelGro       Price Target  :  2.69      |      Price Call  :  BUY
        Last Price  :  2.35      |      Upside/Downside  :  +0.34 (14.47%)
 


  • The worst appears to be over for Taxi business, signalled by growth in bookings and capex for new hybrid taxis
  • Termination of strategic agreement with Uber's LCR
  • Outlook for Rail is positive, with narrowing of DTL losses driven by ridership growth
  • Maintain Accumulate; higher target price of $2.69 (previously $2.48)

What Is the News?

  • ComfortDelGro Taxi announced an uptick in bookings made through its call centre and phone app for the first five months of 2018. Taxi bookings grew almost 9% YoY for the month of May – the biggest YoY jump since September 2014. The recent growth in bookings was attributed to the exit of Uber and ComfortDelGro promotions given to passengers. The 4M-YTD bookings growth was not disclosed.
  • Soon after the purchase of 200 new hybrid Hyundai Ioniq taxis in early May, ComfortDelGro called for a tender to supply 500 more hybrid taxis. The tender has closed on May 31.
  • ComfortDelGro announced the termination of its strategic agreement with Uber, following the exit of Uber from the region. ComfortDelGro will no longer be acquiring the 51% stake in Lion City Holdings Pte Ltd, which operates Lion City Rentals (LCR), as the basis for the partnership is no longer relevant. Nonetheless, ComfortDelGro still maintains its intention to have a stake in the private hire vehicle (PHV) space.

How Do We View This?

The Positives

  • Purchase of new taxis and bookings growth are signalling the worst is over. The 200 taxis purchased was the first capex in 1.5 years for new taxis. The 700 taxis (200 already purchased and 500 from tender) represents an additional +5.5% growth to the Comfort and CityCab fleet of 12,687 taxis as at end-March.

The Negatives

  • ComfortDelGro's involvement in the PHV space would be asset-heavy, by owning the cars and leasing them out. Nonetheless, an asset-heavy model would leverage on the Group's core competency of fleet management and also bring about larger operational scale for the Automotive Engineering Services business. We think it could be possible for ComfortDelGro to explore buying Uber's unhired cars that have been put up for sale in the used-car market recently, in anticipation of its rumoured partnership with Go-Jek.

Outlook

The outlook is positive and improving. We discuss in our Land Transport sector report (8 June) the positive industry restructuring (Uber's exit from the market) and regulatory action coming into effect which levels the playing field (deadline for attaining Private Hire Car Driver's Vocational Licence). The purchase of new taxis and bookings growth are signalling the worst is over. At the same time, we are confident of the narrowing of Downtown Line (DTL) losses, as ridership ramps up (discussed overleaf). This should positively mitigate the impact from the transition of North East Line (NEL) and Sengkang LRT and Punggol LRT (SPLRT) to the new rail financing framework (NRFF), which has an EBIT margin cap of 5%.

Maintain Accumulate; Higher Target Price of $2.69 (previously $2.48)

We have tweaked our assumptions for Taxi revenue and capex, as well as Rail ridership. Our FY18e/FY19e PATMI is now +2.3%/+5.3% from previous estimates. Our target price gives an implied FY18e forward P/E multiple of 18.9 times. The 10.4 cents full year dividend is sustainable, supported by positive free cash flow.

Rail Outlook

Past ridership growth for SBS Transit's Rail segment were attributable to DTL

Noticeable spikes in ridership were due to the commencement of service for DTL1, DTL2 and DTL3 in December 2013, December 2015 and October 2017 respectively.

Opening of new lines has shown sustainable higher ridership, with propensity for ramp-up

Each spike in ridership has been sustainable, indicating an immediate change in travel pattern by commuters; as opposed to a novelty-effect of commuters experimenting on the new line. In addition, there has been a ramp-up in ridership, suggesting a gradual adoption as more commuters embrace the new transport infrastructure.

Average daily ridership for SBS Transit's Rail segment to achieve 1.2 million by end- 2018

DTL had 431k average daily ridership in 1Q 2018 and DTL is expected to achieve a stabilised average daily ridership of at least 500k by the end-2018. As such, we estimate that SBS Transit should achieve total average daily ridership (attributable to NEL, DTL and SPLRT) of 1.2 million by end-2018.

Source: Phillip Capital Research - 8 Jun 2018

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