• Maintain BUY and DCF-derived SGD1.77 TP, 25% upside with c.3% yield. We maintain that the ongoing reopening of Singapore’s economy and international borders will support ComfortDelGro’s earnings recovery. Re-rating catalysts should stem from higher ridership for its rail business, the eventual discontinuation of rebates offered to Singapore taxi drivers, and higher earnings from overseas operations in Australia and the UK. While unlikely, there remains a small risk of lower earnings in the UK, if the entire European region sees a sharp decline in economic growth.

• Succession planning in line with business restructuring and long- term growth objectives. As part of a series of leadership changes aimed at preparing CD for its next stage of growth, SBS Transit CEO Cheng Siak Kian will be appointed as CD’s deputy CEO, while continuing to serve as CEO of the latter company. Cheng will help to focus on CD’s overseas businesses and its global expansion strategy. Last year, CD consolidated the taxi, private unscheduled bus and private hire and leasing businesses (ie all non-public transport businesses) under the Private Mobility Group (PMG) division, which is headed by Jackson Chia. The PMG unit may be further expanded to include the engineering and medical transport businesses, as well as overseas businesses in the same discipline.

• Continues to make bite-sized acquisitions overseas. CD announced that its Australian entity entered into an agreement to acquire the assets of Rothery’s Coaches business in Rockhampton, Queensland, for a total consideration of AUD6.75m (SGD6.74m). Subject to regulatory approvals, the transaction will add a further 16 buses to CD’s existing bus operations in Rockhampton, Queensland. While the acquisition will not have any material impact on earnings, we view this transaction positively, as it reinforces CD’s effort to grow its overseas business.

• Energy costs are a pass-through, taxi rental rebates could decline. Except for its rail business (where it does not receive indexation benefits for electricity prices), pricing for most of CD’s bus contracts in Singapore and overseas have fuel indexation benefits built in. Singapore bus contracts are adjusted monthly, for changes in fuel costs. CD offered a 15% rental relief to its taxi drivers in January and February. While it will extend this for another month, CD plans to gradually do away with the rental discounts. It is waiting to see the impact of its announced fare hike for taxi business (effective 1 Mar) on taxi drivers’ earnings.

• Earnings outlook remains promising. Our DCF-derived SGD1.77 TP implies 19x 2022F P/E. This is higher than its 10-year average of c.16x, but seems reasonable – in view of its ongoing strong earnings recovery. Our TP includes an 12% ESG premium over the SGD1.59 fair value.

Source: RHB Research - 23 Mar 2022