ComfortDelGro Corporation - Sustainable Prospects From Public Transport Initiatives

Date: 28/05/2019

Source  :  UOB KayHian
Stock  :  ComfortDelGro       Price Target  :  2.77      |      Price Call  :  BUY
        Last Price  :  2.33      |      Upside/Downside  :  +0.44 (18.88%)

  • The Land Transport Master Plan (LTMP) 2040 was recently announced by the LTA, which included plans for the extension of SBS Transit (SGX:S61)’s Downtown Line and the commencement of a feasibility study for a new rail line in the north/northeast region.
  • Enhancing public transport connectivity is a long-term positive for ComfortDelGro (SGX:C52) with a pipeline of initiatives to increase capacity.
  • Maintain BUY with an unchanged PE-based target price of S$2.77.

What’s New

Extending connectivity in rail public transport.

  • The Land Transport Authority (LTA) aims to enhance public transport to make journeys more seamless and convenient, including the goal of a “45-minute city with 20-minute towns”, increasing accessibility of public transport for shorter journeys.
  • The Land Transport Master Plan (LTMP) 2040 unveiled some key public transport enhancements for the rail network. This includes two new stations on the North South Line, one of which (Sungei Kadut) will be an interchange connecting to SBS Transit (SGX:S61)’s Downtown Line (DTL). This will see the DTL extended beyond Bukit Panjang to the Sungei Kadut industrial area, serving upcoming developments such as TimMac for SMEs from the metal, machinery and timber industries and the future Agri-Food Innovation Park (AFIP). See Land Transport Master Plan 2040 - What Can You Expect. 

Proposed development of new northern rail line enhances ridership.

  • The LTA will also study the feasibility of a proposed rail line to serve new and growing developments in the north and northeast regions which may not currently have direct access to the rail network, such as parts of Woodlands, Sembawang, Sengkang and Serangoon North as well as areas such the Greater Southern Waterfront, potentially benefitting up to 400,000 households.
  • With new extensions and rail networks in place, the LTA aims to have 80% of households within a 10-minute walk from a train station by 2030 (currently: 64%), greatly enhancing the rail framework for ridership. Average public transport ridership has increased at a 3-year CAGR of 2.9% from 2015-18.

Improving bus transport and seamless connection.

  • LTA will also seek to improve bus speeds through the progressive implementation of the Transit Priority Corridor (TPC), an enhanced form of bus priority compared to typical bus lanes. The North South Corridor will be the longest TPC with a dedicated and continuous bus lane.
  • Furthermore, new Integrated Transport Hubs (ITHs) where bus interchanges are integrated with malls, will be built. These include areas such as Beauty World, Bedok South, Hougang, Jurong East, Marina South, Pasir Ris, Tampines North and Tengah.

Stock Impact

Public transport enhancements a long-term positive; but rail will take time to make meaningful contribution.

  • While the extension of the Downtown Line (estimated 2-3 stations) is not expected to significantly affect the line’s ridership, the proposed development of a new rail line enhances the prospect of additional operation contract wins for SBS Transit.
  • Assuming the inclusion of a new Northern rail line, this brings the pipeline of unassigned operator lines to three – along with the Jurong Region Line (opening 2026) and the Cross Island Line (opening 2029). While rail is still loss-making due to the DTL’s initial start-up phase, Singapore’s public transport contributes approximately 20% of ComfortDelGro (SGX:C52)’s operating profit for 2018, a growing proportion of earnings.

More to come from regulatory planning.

  • New Integrated Transport Hubs (ITHs) will likely aid in traffic towards bus transport, along with on-demand public buses currently on trial. Improvements in buses’ speeds will also assist operators in adherence to the Bus Service Reliability Framework, in which incentives are awarded to operators for reducing prolonged waiting times. More developments in last mile bus journeys can be expected to occur given the decentralised transportation planning of LTMP, while the implementation of regulation for private hire vehicles is still yet to kick in.

Earnings Revision / Risk

  • No changes to earnings forecasts.

Valuation / Recommendation

  • Maintain BUY and PE-based target price of S$2.77, pegged to 17.5x 2020F PE, reflecting ComfortDelGro’s long-term one-year forward mean PE.
  • Current ComfortDelGro share price reflects a dividend yield of 4.6%, with long-term growth prospects sustained through public transport initiatives. See ComfortDelGro's dividend history.

Share Price Catalyst

  • More earnings-accretive and aggressive overseas acquisitions.
  • Regulation changes for taxi and public transport.

Source: UOB Kay Hian Research - 28 May 2019

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