• Maintain BUY with SGD1.77 TP, 25% upside. ComfortDelGro’s rail business continues to register higher YoY ridership while its taxi wing has maintained its market leadership position in Singapore. As an indirect beneficiary of increased tourism inflows into the island republic, its share price has lagged the other re-opening plays. We believe market could be concerned about potential weak earnings in 2H22 from its UK and China operations. Nevertheless, we feel confident of CD’s earnings recovery and believe its valuations remain compelling.

• Continues with bite-size overseas acquisitions. After undertaking multiple acquisitions in Australia, CD recently announced acquisition of Irish coach operator GoBus for EUR12m (SGD17m). This will make it the third-largest inter-city coach operator in Ireland. CD will get a fleet of 31 buses and three inter-city coach routes. The routes have been experiencing strong commuter demand in recent months, with one of these route already operating at pre-pandemic levels. CD’s current Irish business operates a fleet of 33 buses and transports >28,000 people a week across all routes. It is forecasted to reach a ridership of >35,000 by end 2022. We leave our forecasts unchanged, as the earnings impact will be limited in our view.

• Strong demand for taxis. Despite the recent rise in COVID-19 numbers in Singapore, the Government has not imposed any fresh domestic restrictions and has kept borders open. Although tourist numbers are far off from pre-COVID-19 levels, it is still on a rising trend. Anecdotally, we are seeing strong demand for taxis during peak hours and fares tend to be cheaper than those offered by ride-hail services providers like Grab and Gojek. This should be positive for CD’s taxi business.

• Rail ridership continues to improve. SBS Transit, CD’s public transport subsidiary in Singapore, has been reporting strong improvement in its rail ridership (Figure 1). 2Q22 rail ridership is 39% higher YoY and 17% higher QoQ. YTD-June rail ridership is only 25% below pre-pandemic levels. This should help improve public transport earnings in Singapore.

• Valuations are not expensive. Our DCF-derived SGD1.77 TP implies 17.2x 2023F P/E. This is a tad higher than its average forward P/E of c.16.4x but seems reasonable – in view of its ongoing strong earnings recovery. The stock is currently trading at 14.5x 1-year forward P/E (Figure 4). Our TP includes a 12% ESG premium based on our proprietary in-house methodology. Downside risks: i) Continuing decline in taxi fleet sizes, ii) increased competition from ride-hailing players leading to lower daily rental rates for taxis, iii) lower margins for key businesses, and iv) the UK witnessing a sharp decline in economic growth.

Source: RHB Research - 19 Jul 2022