One Recovery Step at a Time; Reiterate BUY

• We reiterate BUY on ComfortDelGro (SGX:C52) with DCF-based Target Price of SGD1.76 (WACC: 8.2% and LTG: 1%).
• Land Transport Authority’s (LTA) has raised Electronics Road Pricing (ERP) charges for third time post circuit breaker to ease traffic congestion. Alternative data also indicate substantial recovery in traffic flow, public transport and footfall in work places. Recovery play remains intact.
• ComfortDelGro is trading at 1.2x FY21E P/B (-2 s.d from mean). Second lockdown and higher-than-expected operating cost remain key risks.

Raised ERP Charges to Ease Peak Hour Congestion

• Electronics Road Pricing (ERP) charges at three gantries along Central Expressway (CTE) went up by SGD1 this week to ease congestion during peak periods. ERP charges were first suspended in Apr in anticipation of reduced traffic during circuit breaker period, which ended on 1 Jun. This was the third ERP revision since the end of circuit breaker.
• According to LTA, traffic volume has continued to increase during weekday peak hours as more people started traveling to their workplaces. ERP reviews are conducted every five weeks, and next review will be announced in last week of Sep.

Increased Traffic, Ridership and Back to Work

• Real time data also suggest similar trends in traffic flow and ridership. Based on TomTom real-time traffic data, weekly congestion level has increased steadily (45% from low) post-circuit breaker period. According to Google SG Mobility Report, mobility trends for public transport vicinity has recovered to -30% pre-COVID levels (vs close to -70-80% during circuit breaker).
• Meanwhile, mobility trend in workplaces recovered to -28% pre-COVID-19 levels (vs > -40% in Apr). Mobility trend within residential areas has eased to +18% pre-COVID levels (vs +40% in Apr).

Recovery Story Remains Intact

• We think the worst quarter for ComfortDelGro is over and recovery play is on track. Ridership should recover on easing of social distancing measures, while increasing traffic flows signals recovery in transport demand. As such, ComfortDelGro is on track to scale back its rental relief by year end and we do not expect substantial rental rebates given to the drivers going forward.
• We continue to like ComfortDelGro, given that it will enjoy significant operating leverage in FY21E as ridership normalises.
• ComfortDelGro's share price rebounded 75% in 8-10months following SARS.

Source: Maybank Kim Eng Research - 31 Aug 2020