- ComfortDelGro (SGX:C52) has been a relative laggard (+1.4% year-to-date) compared to other reopening plays. We believe the market will re-rate the stock once ComfortDelGro is able to consistently deliver core EPS growth, driven by better operating leverage. In our view, this should come on the back of recovery in ridership across its key geographies, and continued declines in fuel prices.
Building Presence in Overseas Markets
- Last month, ComfortDelGro Corporation Australia announced it has clinched a 6-year contract worth AUD220mil as the sole operator of public bus transport services in Darwin. It covers a significant part of the Northern Territory’s public transport network, with 170 vehicles operating across more than 180 bus routes.
- Separately, ComfortDelGro is acquiring Irish coach operator GoBus for EUR12mil, making it the 3rd-largest inter-city coach operator in the country. This will comprise a fleet of 31 buses and 3 inter-city coach routes, which have been experiencing robust commuter demand in recent months with easing restrictions.
- Overall, our forecasts are unchanged given the minimal earnings impact.
Continued Recovery in Rail and Taxi Ridership
- Meanwhile, SBS Transit (SGX:S61) continues to see recovery in average daily rail ridership to > 1mil in Jun 2022 (+3.4% m-o-m, +76.7% y-o-y). This is equivalent to around 83% of pre-pandemic levels after relaxation of safe-management measures, and more employees return to the office full time. We see a similar trend for point-to-point trips, which has seen higher passenger demand in tandem with improving social mobility.
- Despite the emergence of omicron subvariants, we do not think the government will tighten COVID-19 rules as Singapore is now more prepared to handle outbreaks.
Incentivise PHV Drivers With New Ride Hailing Model
- ComfortDelGro has introduced a 3-tier commission rate (i.e. 4% for its own 8,900 taxis, 8% for private hire vehicle (PHV) using ComfortDelGro's cars, or 10% if they use their own car) on the trip fare for bookings via mobile app since May 2022. Given the more competitive commission fees, it has grown its PHV drivers to ~1,800 with a rental fleet of 300 vehicles.
- The daily rental rebate of 15% was extended until end-Sep but we think there is potential for a gradual reduction in the discount, which would boost taxi segment profitability.
- Maintain BUY call on ComfortDelGro with DCF-based target price of S$1.76 (8.3% WACC and 1% long-term growth).
- ComfortDelGro is slated to report its 2Q FY2022 results on 12 Aug. (See Earnings Calendar.)
Source: Maybank Research - 15 Jul 2022
