• Maintain BUY and DCF-derived SGD1.77 TP, 18% upside with c.3% yield. Reopening of Singapore’s economy and the international borders should support ComfortDelGro’s profit growth in 2022. We believe strong recovery in taxi demand and earlier-than-estimated improvement in rail ridership could spring a positive earnings surprise. Our estimates include an eventual discontinuation of rebates offered to Singapore taxi drivers and higher earnings from overseas operations. There remains a small risk of lower earnings, if there is a reinstatement of strict COVID-19 measures and if the European region sees a sharp decline in economic growth.

• Boost to taxi business from economic reopening. Under the latest measures, Singapore Government has permitted 75% of the workforce to return to office and has restored the nightlife activities. The impact of this is visible in mobility trends - as per data from Google. Mobility at workplaces as well as at retail and recreation places is returning to pre- pandemic levels (Figure 4 and Figure 5). This, we believe, is positive for CD’s taxi business, which should see higher demand. We believe that strong recovery in taxi demand amidst a moderating industry fleet size and lower competitive intensity from ride hailing operators like Grab and Gojek could spring a positive surprise to CD’s taxi earnings in the coming quarters. CD remains the market leader in Singapore’s taxi industry (Figure 2).

• Public transport business should see improvements as well. Google’s mobility data for Singapore paints a positive picture for CD’s rail business, where we expect ridership to be higher in the coming months as compared to a weak operating data for 2Q21 (Figure 1). Revenue from bus charters in Australia and coach services in the UK should continue to recover as these economies continue to treat COVID-19 as an endemic. As we highlighted in earlier reports, Singapore bus contracts are adjusted monthly for changes in fuel costs and hence should not be impacted by higher fuel costs.

• Valuations are not expensive. 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. The stock is currently trading at 15.6x one year forward P/E (Figure 6). Our TP includes an 12% ESG premium over the SGD1.59 fair value.

• Downside risks: i) Continuing decline in taxi fleet size, ii) increased competition from ride-hailing players leading to lower daily rental rates for taxis, c) lower-than-estimated margins for key businesses, d) reinstatement of strict COVID-19 measures, and e) the entire European region witnessing a sharp decline in economic growth.

Source: RHB Research - 14 Apr 2022