Simons Trading Research
ComfortDelGro 3Q20 Update - Bumpy Recovery
- ComfortDelGro's 3Q20 core net profit fell 44% y-o-y to S$39m, in line with our expectations, with 9M20 coming in at 57% of our previous FY20F.
- We expect the easing of social distancing measures in Singapore to bring taxi and SBS Transit back to the black in 4Q20.
- Maintain ADD and Target Price of S$1.70.
ComfortDelGro's 3Q20 Results in Line
- ComfortDelGro (SGX:C52) reported 3Q net profit of S$22m (-69% y-o-y), a strong recovery from 2Q net loss of S$42m. Stripping out government reliefs (+S$42m) and impairment losses (-S$18m), ComfortDelGro’s normalised operating loss of S$0.2m in 3Q20 was in line with our expectations.
- Key drags remain taxi (S$7m normalised operating loss) and SBS Transit (SGX:S61) (S$4m normalised operating loss), due to ongoing taxi rental waiver and weak rail ridership in Singapore.
Gradual Reopening to Drive Further Mobility Increase in SG
- COVID-19 remains well under control in Singapore with cases reported in the community in the low single-digits over the past two weeks. We expect mobility to further improve in 4Q, helped by further easing of social distancing measures locally, including relaxation of work from home arrangements (announced end-Sep), and a potential transition to phase 3 of reopening.
- According to ComfortDelGro, ridership of rail, bus, and taxi have recovered to about 55%, 70% and 80% of pre-Covid levels as of end-Sep.
- We forecast both the taxi segment and SBS Transit to return to the black in 4Q, with further moderation in taxi rental rebates and rail ridership recovery.
Overseas markets a mixed bag
- We expect ComfortDelGro’s markets to see continued recovery in Australia and China in 4Q20. With the COVID-19 situation in Melbourne successfully brought under control, the lockdown was lifted at end-Oct. China has also seen social activities almost back to pre-Covid levels during the Golden Week, according to ComfortDelGro.
- However, ComfortDelGro’s operations in the UK will be negatively impacted by a second national lockdown given the worsening resurgent wave of infection over the past few weeks. We see risks of public bus service frequencies being adjusted down to weekend levels amid tightened measures, and other commercial services (taxi, coach and charter businesses) could be worse hit.
Reiterate ADD and Target Price of S$1.70
- As Singapore is still the biggest earnings contributor for ComfortDelGro, we expect continued sequential earnings recovery in 4Q20, and forecast core net profit of S$51m (+30% q-o-q, -33% y-o-y) for the quarter.
- Reiterate ADD, as we believe the worst is over for ComfortDelGro and see net profit recovery (+101% y-o-y) in FY21F.
- We fine-tune our ComfortDelGro's FY20-22F earnings forecast by 0.3%-2.3%. Target Price is kept at S$1.70, still pegged to 15.6x FY21F P/E (ComfortDelGro’s historical average).
- Potential catalysts include rail financing policy reform and earnings-accretive M&As.
- Downside risks include slower ridership recovery and another major resurgence of COVID-19 in markets operates in.
- We prefer SBS Transit (SGX:S61) over ComfortDelGro.
Source: CGS-CIMB Research - 12 Nov 2020
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