• ComfortDelGro’s taxi segment has seen an encouraging recovery in rides and fares which will do well to support drivers’ income. Taxis have remained competitive post-Phase 2 while ComfortDelGro’s rental relief has also been progressively stepped down.
• We opine the new PDVL regulation could right-size the large private-hire fleet, keeping in mind the Self Employed Person Income Relief Scheme due for its final scheduled payout in Oct 20.
• Maintain BUY on ComfortDelGro given the positive signs of recovery that remain discounted by the market.

Taxi Rides and Fares Have Been on An Encouraging Uptrend

• We highlight the positive uptrend in not just ComfortDelGro (SGX:C52)’s rides, but also fares that have been boosted by an increase in demand post-Phase 2. Taxi rides are back to 70% of pre-COVID- 19 levels while we observe fares are at 70-80% of pre-COVID-19 levels, at comparable levels with ride-hailing peers.
• ComfortDelGro’s rental waiver is still in place at 25% until end-Oct 20 but continues to be progressively reduced (Aug 20: 30%)

Extended Government Support for Drivers Until Mar 21

• The government has also set aside S$106m for the 6-month extension of the Special Relief Fund (SRF) to Mar 21. The SRF was enacted to help active taxi and private-hire drivers defray business costs by providing monthly payout of $300 per vehicle per month (ie S$10 per day). The extended support aims to continue the assistance for drivers.
• In addition, the temporary liberalisation of point-to-point regulations to allow for the use of taxis and private hire in delivery services continues to be in place.

Taxis Retaining Market Share; New PDVL Regulation Could Right-size Private-hire Fleet

• Our estimates indicate that taxis have largely retained its market share of total point-to-point rides, comparable to 2019 levels, a positive sign for continued demand in street hail rides. The new regulation to restrict new applicants of Private Hire Car Vocational Licence (PDVL), namely only for Singaporeans over the age of 30, levels the playing field for taxis while potentially right-sizing the large number of private-hire fleet in the market.

Gradual Easing of Restrictions in Australia Will be a Positive

• New COVID-19 daily cases have eased in Australia, especially in hard-hit Victoria, Australia. While bus routes are still in operation with 50-60% pre-COVID-19 ridership in New South Wales, the slight easing of restrictions in Victoria could be a positive first step.
• Recall that ComfortDelGro Share Price had been substantially discounted in Jun 20 with the rise in cases in Australia. Australia accounts for 19% of ComfortDelGro’s normalised operating profit in 2019.

Watching Private-hire Fleet

• While the new regulation for private-hire driver licence does not affect current drivers, age restrictions of new drivers could impede additional supply into the market for the extended period affected by COVID-19. This also levels the playing field for taxis in terms of driver eligibility, noting that the current share of drivers under the age of 30 is about 15%, or 7,500 drivers.
• Note that the final payout of the Self Employed Person Income Relief Scheme (SIRS) is in Oct 20. While an extension of the scheme is a likely scenario, a sizeable step-down in the payout relief could accelerate the exit of weaker players, especially with the large private-hire driver base.

Lower Number of Cases Could Ease Restrictions Although Uplift Will be Gradual

• Australia’s daily COVID-19 case counts have receded following its second wave, especially in hard-hit Victoria. Restrictions in Victoria have been lifted slightly as of 14 Sep 20. Although the city will remain under hard lockdown, the amount of time people will be able to spend outside will double to two hours per day while the overnight curfew will be shortened by an hour.
• In New South Wales, ComfortDelGro-operated bus contract routes have seen bus trips return to 50-60% of pre-COVID-19 levels as of Aug 20, although we think the mileage is still affected by the restrictions. Recovery is still gradual, which will likely be the trend to prevent a surge in COVID-19 cases.
• On a normalised basis, Australia accounted for 19% of ComfortDelGro’s operating profit in 2019.

Maintain BUY on ComfortDelGro

• Maintain BUY on ComfortDelGro with a target price pegged to 17.2x PE (long-term forward mean PE, excluding outliers) for 2021F earnings. ComfortDelGro currently trades at an attractive 14x 2021F PE, and we opine that there are positive signs of recovery from key segments, such as taxi, that remain discounted by the market.
• ComfortDelGro is one of the UOB Kay Hian's alpha picks for September.

Source: UOB Kay Hian Research - 21 Sep 2020