• BUY, new SGD1.75 TP from SGD1.77, 20% upside with c.3% yield. ComfortDelGro’s 1H22 core profit was slightly below our estimate. The one-off gain from the sale of its Alperton property in London was paid to investors as special dividends. While we remain upbeat on its earnings recovery, there could be a near-term share price overhang as investors assess: i) The impact of the amended service fee from 1 Sep onwards, for five public bus contracts in Singapore; and ii) whether CD extends the taxi rental rebates beyond end-Sep 2022.

• 1H22 core profit was a tad below expectations, but operating profit continued to improve. CD reported 1H22 revenue of SGD1.8bn (+7% YoY, 50% of our full-year estimate) and net profit of SGD119m (+30% YoY, 61% of our FY22 projection). However, net profit included a one off gain of SGD37.2m (post-tax gain of SGD30.5m) from the disposal of a property in London. Excluding this gain, core net profit of SGD88m (-3% YoY) accounted for 46% of our full-year estimate. Nevertheless, the operating metrics continued to improve, as EBIT (excluding the one off gain and government relief) increased 68% YoY to SGD51m – aided by improving economic activity in Singapore and the UK as COVID-19 related restrictions have been relaxed.

• A surprise special dividend for investors. CD announced an interim DPS of 2.85 SG cents, which implies a payout ratio of 70% excluding the exceptional gain from the sale of the Alperton property in London. On top of that, the one-off gain from the sale of the London property was paid to investors as 1.41 SG cents of a special DPS.

• Tweaking earnings forecasts; valuations are still reasonable. We have lowered our 2022-2024F profits by 2-4%. Our DCF-derived SGD1.75 TP implies 17.7x 2023F P/E. While this is higher than CD’s 10-year average of c.16x, it seems reasonable – in view of its ongoing earnings recovery. This stock is trading at 14.7x 2023F P/E. Our TP also includes a 12% ESG premium over the SGD1.56 fair value, based on our proprietary in-house methodology.

• Downside risks: i) Extension of rental rebates to Singapore taxi drivers beyond Sep 2022; ii) continuing decline in its taxi fleet size; iii) lower-than- estimated Singapore bus revenue amidst amended bus contracts; iv) lower margins for key businesses; and v) the UK witnessing a sharp decline in economic growth.

Source: RHB Research - 15 Aug 2022