• We hosted ComfortDelGro’s management for a virtual non-deal roadshow on 28 Jun to discuss the company’s latest operational updates and future growth plans.
• Tighter mobility restrictions in Singapore since May have curtailed ridership, but we see progressive recovery in 2H21F as vaccination rates ramp up.
• ComfortDelGro remains committed to growing its presence abroad via organic (tenders) and inorganic opportunities (M&A).

Re-tightening of Mobility Restrictions in SG a Near-term Dampener

• The reversion to Phase 2 (Heightened Alert) in Singapore has negatively impacted social mobility – rail ridership fell to ~50% of pre-COVID-19 levels in May, and ComfortDelGro (SGX:C52) reintroduced higher taxi rental rebates of 50% for the period (lowered subsequently to 35% in Jul) to support taxi drivers’ earnings. Easing of restrictions to-date has been gradual, but with vaccination rates in Singapore expected to trend higher (government expects two-thirds of the population having received their first dose by early-Jul, and be fully vaccinated by early- Aug), we expect a clearer path towards a new normal by 2H21F.
• We view the recent re-tightening of measures as a near-term dampener, and hence lower our FY21F earnings forecast for ComfortDelGro by 19.1%. Our FY22-23F earnings forecast remain intact, with minor tweaks of 0.1-1.2%.

Australian Portfolio Ready for Value Unlocking

• On the strategic review of ComfortDelGro’s Australia assets announced in May, management said the key it does not plan to exit Australia.

On the Lookout for Growth Opportunities

• ComfortDelGro continues to actively bid for new excess cash unnecessarily, and shareholders should be rewarded if there are no major capital needs on the horizon.

What Valuation Can ComfortDelgro Fetch?

• Our analysis of past Australian transport services M&A transactions and ASX-listed peers point towards a valuation range of 6.9x-13.1x EV/EBITDA, a premium compared to ComfortDelGro’s current valuation of 5.1x FY21F EV/EBITDA.

Reiterate ADD With Slightly Lower Target Price

• Reiterate ADD call on ComfortDelGro. With the earnings cut, we lower our target price for ComfortDelGro slightly, still pegged to 16.8x CY22F P/E (+0.5 standard deviation above ComfortDelGro’s 5-year historical average).

• Besides the potential value unlocking move, other re-rating catalysts include positive updates on the Downtown Line financing framework reform, and reinstatement of interim dividends in Aug.
• Downside risks include slower ridership recovery.

Source: CGS-CIMB Research - 29 Jun 2021