ComfortDelGro - Potholes Ahead

Date: 29/06/2020

Source  :  CIMB
Stock  :  ComfortDelGro       Price Target  :  1.46      |      Price Call  :  HOLD
        Last Price  :  1.39      |      Upside/Downside  :  +0.07 (5.04%)

  • ComfortDelGro expects a net loss for 1HFY20, due to
    1. Covid-19 significantly impacting ridership, and
    2. possibility of investment impairments.
  • Ridership normalisation is likely to be gradual as governments cautiously balance the reopening of economy with preventing future waves of Covid-19.
  • We cut FY20F EPS by 23.6% to factor in higher taxi rental rebates and lower public transport ridership.
  • Reiterate HOLD with a lower Target Price of S$1.46.

ComfortDelGro's Profit Warning a Negative Surprise

  • ComfortDelGro (SGX:C52) issued a profit warning, expecting a net loss for 1HFY20, due to
    • Covid-19 significantly impacting ridership, and
    • the possibility of impairment of investments in certain local and overseas subsidiaries.
  • While we had already expected ComfortDelGro to record a net loss in 2Q20 due to lockdown measures across ComfortDelGro’s key operating regions, the announcement came as a negative surprise as it implies wider losses during the period. We expect the impairments to mainly come from the taxi business, given weaker segment profitability due to continued taxi rental rebates and higher taxi idle rates.

Longer Pain as We Expect Ridership Recovery to be Gradual

  • We see downside risks to Bloomberg consensus’ FY20F EPS forecasts, as earnings recovery in 2H20F is likely to be modest. We expect a gradual ridership normalisation for Singapore given the continued emphasis of safe distancing measure. Working from home (WFH) remains the default option in the first two phases of Singapore’s reopening post circuit breaker. There is also a lack of the tourism aspect, as we believe the resumption of international mass market travel is still a long way off.

Lowering Our FY20F EPS Forecast by 23.6%

  • ComfortDelGro announced an extension of the 50% rental rebate for cabbies till Jul 15; we do not rule out a further extension of rental rebates as it is crucial for ComfortDelGro to retain its taxi fleet through this Covid-19 crisis. A slower ridership recovery could also impact rail profitability, as ComfortDelGro bears fare revenue risk.
  • We lower our FY20-22F EPS by 0.2-23.6% to factor in higher taxi rental rebates and lower ridership assumptions for public transportation. We estimate S$128m JSS subsidies to be a significant help in cushioning earnings decline; and forecast ComfortDelGro to record a 58.5% core net profit decline in FY20F.

Maintain HOLD With a Lower Target Price of S$1.46

  • Reiterate HOLD on ComfortDelGro. While the worst is likely over with ComfortDelGro’s key operating regions emerging from lockdowns, we expect a bumpy road to recovery, with governments having to maintain a cautious balancing act between lifting restrictions to allow the economy to recover and preventing another wave of Covid-19.
  • Our target price is lowered to S$1.46, still based on 13.1x FY21F P/E (1 s.d. below CD’s historical mean).
  • Upside risks include potential rail financing policy reform and possible earnings-accretive M&As, while downside risks include faster-than-expected taxi fleet decline and slower ridership recovery.

Source: CGS-CIMB Research - 29 Jun 2020

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ComfortDelGro 1.39 -0.02 (1.42%) 10,119 

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