• ComfortDelGro reported core operating profit of S$64.6m in 1Q22 (+26% y-o-y), slightly below our expectation. Public transport services saw an improvement as key markets have eased most social distancing measures. The taxi segment was hit by an Omicron wave in China and a smaller fleet size. Ridership levels are set to recover as social mobility rebounds.
• Trading at -1 standard deviation of its long-term mean P/E, there is potential upside at the current price levels. Maintain BUY rating on ComfortDelGro with a lower target price.

ComfortDelGro's 1Q22 Results Slightly Below Our Expectations

• ComfortDelGro (SGX:C52) reported 1Q22 revenue and PATMI of S$895.9m (+3.9% y-o-y, -2.1% q-o-q) and S$76.7 (+30.4% y-o-y, +476.7% q-o-q) respectively, making up 23.9%/33.8% of our full-year estimates. However, adjusting for an around S$30.4m net gain on disposal of ComfortDelGro’s Alperton property in the UK, adjusted PATMI would amount to about S$46.3m (-17.6% y-o-y, +248.1% q-o-q), forming 20.4% of our full-year forecasts and below our expectations.
• Core operating profit (excluding government relief and exceptional items) grew +25.7% y-o-y and +20.5% q-o-q, slightly below our expectations although higher social mobility, driven by easing social distancing measures, boosted ridership levels.
• Operating costs increased 8.4% y-o-y as most government reliefs in 1Q22 (S$4.7m) have tapered off as compared with 1Q21 (S$33.4m).

Increased Ridership in Key Markets

• With the exception of China, ridership levels in key markets have increased as most social distancing restrictions were relaxed. In Singapore, rail ridership at end-1Q22 has reached 70-75% of pre-pandemic levels while international borders have fully reopened. The UK and Australia have also transitioned to endemic living as most social restrictions have been eased, along with the resumption of international travel.

Public Transport: Slower Quarter Due to Omicron

• 1Q22 revenue was mixed at S$712.0m (+6.0% y-o-y, -3.4% q-o-q), with the q-o-q decline largely due to the emergence of the Omicron variant. However, core operating profit was robust (+83.1% y-o-y, +43.6% q-o-q), aided by increased y-o-y ridership levels due to easing of restrictions as well as excluding substantial government relief in 2021.
• As more companies revert back to work-from-office arrangements coupled with increasing tourist arrivals, ComfortDelGro noted that it expects current rail ridership levels of 70-75% of pre-COVID-19 levels to improve moving forward.
• Public transport schedules in Australia remain stable while public bus services in the UK are operating on full schedules with bus chartering service levels also picking up.

Taxi: Affected by Lockdowns and Rental Rebates

• Taxi revenue was lower y-o-y (-11.2% y-o-y, +3.3% q-o-q) due to ongoing lockdowns in China, divestment of its UK taxi business as earnings. Looking forward, overall taxi ridership levels are expected to pick up as social mobility improves.

Lower Our 2022-24 Earnings Forecast for ComfortDelGro by 2-4%

• To account for a slower-than-expected recovery and higher slightly below our expectations. Hence, we have taken a conservative approach and pegged our P/E multiple to ComfortDelGro’s five-year mean P/E.

• Catalysts:
  • Larger-than-expected increase in tourist arrivals.
  • Bus tender contract wins.
  • Earnings-accretive overseas acquisitions.
  • Regulatory changes in public transport.

Source: UOB Kay Hian Research - 17 May 2022