• We believe Singapore government’s latest relaxation of work arrangement policies can support further ridership recovery in coming months.
• Downtown Line (DTL) financing framework is another key potential catalyst for ComfortDelGro; we see 7.2%-8.6% earnings per share upside if fixed licence fee for the rail line is waived.
• Reiterate ADD on ComfortDelGro with a higher target price of S$1.82, based on higher CY22F P/E of 16.8x (0.5 standard deviation above historical average).

Further Relaxation of Workplace Restrictions

• From 5 Apr onwards, Singapore will shift from working-from-home as a default to a more “flexible and hybrid” way of working. Split team arrangements will no longer be mandatory, and up to 75% (currently 50%) of the employees can now be at the workplace at any one time.
• As of Feb 21, average rail ridership remains 28% below 2019’s levels; we believe the latest policy change on workplace arrangement could support further ridership recovery in coming months.
• We continue to expect rail ridership to recover to 90% of pre-COVID-19 levels by end-2021F, as we think that amidst a new normal, there will be less commuting due to increased flexibility in work-from-home arrangements, which may not necessitate daily travel to work. Further paring of taxi rebates in coming months should also help support ComfortDelGro (SGX:C52)’s core net profit recovery (forecast +92.5% y-o-y) in FY21F.

Downtown Line (DTL) Financing Framework Review Another Potential Catalyst

• We also see a potential catalyst from Downtown Line (DTL) financing framework review this year, where we see 7.2%-8.6% government to review the rail financing framework.
• We see a potential two-step reform, where
  1. tweaks to make DTL’s financing framework consistent with other rail lines, which is a low hanging fruit, could be executed this year to help stem the bleed for ComfortDelGro; while
  2. a switch to a cost-plus model for operators is more likely to happen in the medium-term given the added complexity.

Reiterate ADD on ComfortDelGro With a Higher Target Price of S$1.82

• Reiterate ADD as we believe the worst is pegged to 16.8x CY22F P/E (+0.5 s.d. above ComfortDelGro’s 5-year historical average), as we pencil in the possibility of DTL’s financing framework reform.
• Other potential catalysts include earnings-accretive M&As.
• Downside risks include slower very and another major resurgence of COVID-19 in markets ComfortDelGro operates in.

Source: CGS-CIMB Research - 25 Mar 2021