ComfortDelGro - Wins New Bus Contract in Australia; Keep BUY

Date: 07/06/2022

Source  :  RHB
Stock  :  ComfortDelGro       Price Target  :  1.77      |      Price Call  :  BUY
        Last Price  :  1.17      |      Upside/Downside  :  +0.60 (51.28%)

  • ComfortDelGro (SGX:C52) should continue to see sustained earnings recovery over the next few quarters as business that was impacted by the pandemic, gradually returns to normalcy. There is also potential for further organic and inorganic growth opportunities outside Singapore, similar to the recently announced Darwin contract win.
  • We believe sustained strong taxi demand could spring a positive earnings surprise for ComfortDelGro. There also remains a risk of lower earnings if the UK sees a sharp decline in economic growth.
  • BUY ComfortDelGro with S$1.77 target price, 23% upside and ~3% yield.

Darwin Contract Win

  • ComfortDelGro has won a contract to operate bus services in Darwin. It will become the sole operator of public bus transport services in Darwin, Palmerston, rural areas, and special needs services. The bus contract, which begins on1 July 2022, will last six years. The contracts areas are in addition to the Alice Springs, Batchelor, and Jabiru school services, which were awarded to ComfortDelGro in late 2021.
  • ComfortDelGro also continues to operate the urban bus network contract in Alice Springs. We assess the contract win to be earnings neutral.

Further Growth Opportunities in Public Transport

  • In France, ComfortDelGro along with RATP, a French government-owned company and the largest rail operator in Paris, has been shortlisted for the rail tenders for the Greater Paris Express Line 15, 16, and 17. If the consortium wins the tender, these contracts will be for a minimum of six years and are expected to start full operations in 2025-26.
  • In Sydney, Australia, ComfortDelGro will be submitting its bid to continue operating the bus services in regions 4 & 14. It is also submitting a tender to acquire new bus contract for region 12 of Sydney.
  • ComfortDelGro has recently submitted a tender for new bus contracts in Perth, results of which could be announced towards end-2H22.

Inexpensive Valuations for ComfortDelGro

  • Our DCF-derived ongoing strong earnings recovery.
  • ComfortDelGro is currently trading at 13.9x 2023F P/E. Our target price includes a 12% ESG premium over the S$1.58 fair value based on our proprietary in-house methodology.
  • Key downside risks:
    1. Continuing decline in taxi fleet size,
    2. increased competition from ride-hailing players,
    3. lower-than-estimated margins for key businesses,
    4. reinstatement of strict COVID-19 measures, and
    5. the decline in economic growth.

Source: RHB Invest Research - 7 Jun 2022

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ComfortDelGro 1.18 +0.01 (0.85%) 1,740,600 

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