• ComfortDelGro (SGX:C52)'s 1Q22 numbers were in line with our estimates. We maintain that the reopening of Singapore’s economy and international borders should support a sustained earnings recovery.
• While ComfortDelGro has extended taxi rental rebates till September, it has tweaked its earnings model to offset some taxi revenue declines. We believe sustained strong taxi demand – as seen now – could spring a positive earnings surprise.
• There remains a risk of lower earnings if the UK sees a sharp decline in economic growth.
• Keep BUY and S$1.77 target price for ComfortDelGro, 20% upside and ~3% yield.

ComfortDelGro's 1Q22 Business Update

• Singapore accounted for 57% of ComfortDelGro's 1Q22’s revenue of ~S$896m (+3.9% y-o-y, -2.1% q-o-q). Public transportation accounted for 80% of topline. Excluding the COVID-19 government relief and exceptional gains from the Alperton property disposal in the UK, ComfortDelGro reported y-o-y improvements in operating profit to S$64.6m (+25.7% y-o-y).
• Excluding the gains from disposal of property, adjusted PATMI of ~S$46m (-17.6% y-o-y, +248.1% q-o-q) accounted for 23% of our 2022F earnings. Excluding the COVID-19 government relief (core), operating profit for public transport improved to S$37.9m (+83% y-o-y, +44% q-o-q), aided by higher revenues in Singapore as public transport ridership levels continued to improve.
• Core operating profit for taxis fell to S$10.9m (-24.8% y-o-y, -6.8% q-o-q) amidst a smaller fleet size and continued rental rebates being offered to taxi drivers.

Small Tweaks to the Taxi Business Model

• ComfortDelGro has been witnessing a strong demand for taxi bookings as Singapore’s economy returns to normal business activities. This, in addition to the recent upward adjustments to fares, has ensured that taxi driver earnings have reverted to pre-pandemic levels.
• To remain competitive against private hire vehicle or PHV operators like Grab and Gojek – which are offering lower rentals – ComfortDelGro has extended its 15% rental rebate to September. However, starting from May, the company has started charging a 4% commission (Grab and Gojek charge 20%) on total fares for all taxi bookings (~45% of ComfortDelGro’s taxi rides are through a booking platform).

Reasonable Valuations

• Our DCF-derived S$1.77 target price for ComfortDelGro implies 19x 2022F P/E. While this is higher than ComfortDelGro’s 10-year average of ~16x, it seems reasonable in view of its ongoing strong earnings recovery.
• ComfortDelGro's share price is currently trading at 14.2x 2023F P/E. Our target price for ComfortDelGro includes a 12% ESG premium over the S$1.59 fair value based on our proprietary in-house methodology.

• Downside risks:
  1. Continuing decline in taxi fleet size,
  2. increased competition from ride-hailing players,
  3. lower-than-estimated margins for key businesses,
  4. reinstatement of strict COVID-19 measures, and
  5. the UK witnessing a sharp decline in economic growth.

Source: RHB Invest Research - 18 May 2022