ComfortDelGro (SGX:C52)'s 9MFY20 earnings missed MKE/consensus estimate. This is mainly driven by S$17.5m impairment on taxi and regional coach businesses in UK this quarter, as well as negative operating leverage.
That said, we are seeing green shoots in China and Singapore as COVID-19 situations are under-control.
We have fine-tuned our operational forecast and raised FY20E core earnings by 0.9%. Maintain BUY on ComfortDelGro with DCF Target Price of S$1.76.
Key risk includes worsening of COVID-19 situation in key operating countries.
Swung Back Into the Black in 3Q20
ComfortDelGro's 9MFY20 revenue fell 19.3% y-o-y to S$2.34b on contraction from public transport services (-10.1%), taxi (-42.1%) and automotive engineering (- 13.7%) due to lockdown amid COVID-19.
Bottom line was impacted by negative operating leverage and impairment of S$48.3m on taxi and regional coach businesses in Singapore and UK. This was cushioned by various government reliefs of S$126.5m (mainly SG - S$100.3m) for continuing transport connectivity.
That said, operational performance in 3Q20 showed improvement since 2Q20, indicating that ComfortDelGro is emerging out of the worst.
Green Shoots in Singapore, Australia and China
We are seeing green shoots in countries such as Singapore (55.1% of EBIT), Australia (18.9%) and China (3.4%) as COVID-19 situation is under-control.
Singapore, are expecting gradual resumption of business activities and are in negotiation with countries on travel bubbles. ComfortDelGro noted that ridership of rail, bus and taxi have recovered to 55/70/80% of pre-Covid levels. As SG is seeing more travel activities, we do not expect substantial rental rebates going forward.
Meanwhile in Australia, movement restriction was being lifted in Oct after COVID-19 situation in Victoria is under-control.
In China, social activities have almost resumed back to pre-Covid levels regionally.
We expect UK/Ireland to be lacklustre as the country is facing a second lockdown.
We have adjusted our FY20E EBIT to account for government reliefs, which was previously under exceptional.
Structural Growth Remains Intact
Gradual lifting of movement restrictions remain a near-term catalyst. ComfortDelGro will enjoy significant operating leverage in FY21-22E as ridership normalises. COVID-19 has made inflection point for recovery difficult to predict. That said, there is significant value as we think the worst is over.
ComfortDelGro's share price rebounded 75% in 8-10 months following SARS. Long-term fundamentals are intact. We believe longer-term public policy support and ESG imperatives will continue to structurally favour public transport over private vehicle ownership.
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