• Maintain BUY and SGD1.65 Target Price, 3% upside with 5% 2021F yield.
• On Friday, ComfortDelGro announced plans to jointly bid for managing the operations and maintenance (O&M) of Lines 16 and 17 of Grand Paris Express (GPE) along with RATP Dev and Alstom, its JV partners.
• Such potential contract wins and/or business acquisitions along with expectation of strong earnings revival in 2021 support our BUY rating.

New Rail Opportunity in France Seems Exciting

• ComfortDelGro (SGX:C52) has for long aspired to grow its business outside Singapore. With clear focus on building upon its strong capabilities in public transport business, ComfortDelGro is looking to expand its rail capabilities in France through a JV.
• RATP Dev is the international operating arm of French state-owned transport operator RATP Group, while Alstom is a French transport infrastructure company. A news source suggests that Alstom will supply the rolling stock for the Lines 16 and 17. The 29km long Line 16 of GPE is expected to be operational by 2023, while the 27km long Line 17 will open in phases, between 2023 and 2030. The expected daily ridership for Lines 16 and 17 are 200k and 130k-160k, respectively. We understand that the O&M contract for Line 16 and 17 will be cost-plus with no fare revenue risk, implying a low-risk, steady margin and strong FCF generating business opportunity.

Waiting to Witness and Assess the Positive Momentum in Singapore Taxi Business

• In a recently published news article, Ang Wei Neng, CEO of ComfortDelGro Taxi, noted that in addition to offering rent waivers, ComfortDelGro’s efforts to create alternate sources of income for its taxi drivers have resulted in the number of trips for each taxi increasing by more than 30% on average, since the start of Phase 1 of Singapore’s reopening. With Phase 2 of the reopening now in place, we wait to see whether such gradual improvement can be sustained over the rest of the year.
• A better-than-expected revival in economic growth and consumer confidence could imply lower losses for taxis in 2020, thereby lifting consensus estimates.

Trading at An Average P/E Despite Expectation of Strong Earnings Recovery

• Our SGD1.65 Target Price implies 15.5x FY21F P/E, which is in line with ComfortDelGro’s 10-year average forward P/E.
• Given expectations of a strong earnings recovery in 2021, ComfortDelGro should trade above its historical average. Also, winning of new business contracts and potential earnings accretive acquisition could further lift profit estimates.
• The downside risks to earnings would come from persistently weak economic recovery amidst a second wave of COVID-19 infections or a material decline in margins for the public transport business.

Source: RHB Invest Research - 22 Jun 2020