• ComfortDelGro (SGX:C52) announced more rental relief for its taxi drivers, in a bid to stabilise its taxi fleet as cabbies are finding it difficult to make ends meet.
• This will push ComfortDelGro’s SG taxi business into the red for FY20F. We also expect earnings hits at its UK and Australia units due to the lockdowns imposed.
• ComfortDelGro trades at 12.5x FY21F P/E, 1 s.d. below historical mean (13.1x), pricing in the Covid-19 impact, in our view.

More Taxi Rental Relief to Retain Drivers

• ComfortDelGro announced that it will be matching the government's daily rental relief of S$10 per taxi per day till end-Sep 2020. Depending on the prevailing conditions, ComfortDelGro will also extend its additional S$26.50 daily relief till then (meaning its cabbies can expect to receive up to S$46.50 rental relief per day till end-Sep if the situation does not improve).
• According to ComfortDelGro, this move will effectively push its Singapore taxi business into the red for FY20F.
• Nevertheless, we believe this is a crucial move for ComfortDelGro in order to retain its taxi fleet through the Covid-19 crisis, as its taxi drivers are suffering from lower income due to fewer tourist arrivals and an increase in the number of people working from home.

Taxi Drivers Are Finding It Hard to Make Ends Meet

• According to ComfortDelGro, the drop in net income for taxi drivers (excluding rental rebates) was as much as 42% (22% with the rebates) since the outbreak hit Singapore in end-Jan. Despite the financial aid from the government and operators, many drivers have given up driving as a result.
• A Straits Times article cited industry observers’ estimates that the current idle rate for taxis/private hire cars in Singapore could be as high as 30%. With the recent enhanced advisories by the government to encourage people to work from home and avoid non-essential travel, we believe that the taxi idle rates could further increase in the near term.

Overseas Markets Are Also Affected

• Outside of Singapore, ComfortDelGro's other key markets, specifically the UK and Australia, have also entered into various states of lockdown beginning last week, which could further dampen ridership numbers.
• ComfortDelGro provides taxi, city-bus and regional bus services in those countries, and the two markets jointly contributed 28.6% of ComfortDelGro’s FY19 EBIT.

Reiterate HOLD, With a Lower Target Price of S$1.55

• We cut our FY20-22F EPS forecasts by 13.4%-38.6% to account for higher taxi rebates and idle rates, as well as lower earnings contributions from ComfortDelGro’s overseas businesses.
• Our target price is now based on 13.1x FY21F P/E (1 s.d. below its historical mean), vs. 15.0x previously.
• We reiterate our HOLD call, and would look to accumulate closer to the S$1.25 level, which implies ComfortDelGro’s GFC trough valuation of 10.6x FY21F P/E.
• Upside risks include possible earnings-accretive M&As, while downside risks include higher-than-expected taxi idle rates and longer-than-expected lockdowns.

Source: CGS-CIMB Research - 30 Mar 2020