• We turn more positive on ComfortDelGro (SGX:C52) as we see room for further relaxation of social-distancing measures in Singapore, which will aid ridership recovery.
• We expect rail ridership to return to 90% of pre-Covid levels by FY21F. Taxi segment could return to the black by 4Q20F with moderation of taxi rebates.
• We believe market has yet to price in ComfortDelGro’s recovery scenario (FY21F net profit: +104% y-o-y).
• Upgrade ComfortDelGro from Hold to ADD, with a higher Target Price of S$1.70.

Loosening of Social-distancing Measures Could Increase Mobility

• We expect public transport ridership in Singapore to return to 90% of pre-Covid levels by FY21F (Aug 2020: 55%). With new local community COVID-19 cases currently at low levels (1.1 daily new cases based on the past two week’s moving average), we see room for further relaxation of social-distancing measures, which could spur ridership recovery.
• Beginning today, Singapore will allow tourist attractions to raise their operating capacity from 25% to 50%; capacity for outdoor shows can also be further scaled up to 250 people (from 50 previously). We also see likelihood that the government could loosen the work-from-home arrangements in the coming months, increasing mobility of Singaporeans.

Continued Moderation of Taxi Rental Rebates

• ComfortDelGro recently announced that it will be providing a 25% rental waiver for all taxi drivers from 16 Sep to 31 Oct. Beyond that, ComfortDelGro also committed to at least match the S$10/day Special Relief Fund (SRF) that the government will be extending to drivers till Mar 2021 (previously expiring end-Sep). This reflects continued moderation in taxi rental rebates — ComfortDelGro offered a 40% rental rebate from 16 Jul to 15 Aug, and 30% from 16 Aug to 15 Sep.
• Assuming no additional relief apart from the committed amount for SRF beyond Oct, we believe ComfortDelGro’s taxi segment could return to the black in 4Q20F.
• According to the Straits Times, the Ministry of Manpower and Ministry of Finance are also studying the possibility of extending the Self-Employed Person Income Relief Scheme (SIRS). If realised, taxi drivers’ earnings will be better supported and ComfortDelGro’s taxi fleet size stabilised, in our view. We cut our FY20F EPS by 4.8% to factor in higher taxi rebates, but raise our FY21F EPS by 0.5% due to higher government relief.

Upgrade ComfortDelGro to ADD; Target Price Raised to S$1.70

• Operationally, we believe the worst is over for ComfortDelGro and see net profit recovery (+104% y-o-y) in FY21F. ComfortDelGro currently trades at 14.0x CY21F P/E, or 0.6 s.d. below its historical average, which we think has yet to fully factor in the recovery scenario. We upgrade ComfortDelGro from Hold to ADD.
• Our Target Price is lifted to S$1.70, now pegged to 15.6x FY21F P/E (ComfortDelGro’s historical average), from 13.3x (-1 s.d.) previously.
• Potential catalysts include bus package tender wins, rail financing policy reform and earnings-accretive M&As.
• Downside risks include a steeper taxi fleet decline, slower ridership recovery and a major resurgence of COVID-19 in geographies ComfortDelGro operates in.

Source: CGS-CIMB Research - 18 Sep 2020