• ComfortDelGro’s 1H22 core profit was slightly below our estimate. The one-off gain from the sale of its Alperton property in London was paid to investors as special dividends.
• While we remain upbeat on its earnings recovery, there could be a near-term overhang to ComfortDelGro's share price overhang as investors assess:
  1. The impact of the amended service fee from 1 Sep onwards, for five public bus contracts in Singapore; and
  2. whether ComfortDelGro extends the taxi rental rebates beyond end-Sep 2022.
• BUY, new S$1.75 target price from S$1.77, 20% upside with ~3% yield.

ComfortDelGro's 1H22 Core Profit Was a Tad Below Expectations, But Operating Profit Continued to Improve

• ComfortDelGro (SGX:C52) reported 1H22 revenue of S$1.8bn (+7% y-o-y, 50% of our full-year estimate) and net profit of S$119m (+30% y-o-y, 61% of our FY22 projection). However, net profit included a one off gain of S$37.2m (post-tax gain of S$30.5m) from the disposal of a property in London. Excluding this gain, core net profit of S$88m (-3% y-o-y) accounted for 46% of our full-year estimate.
• Nevertheless, the operating metrics continued to improve, as EBIT (excluding the one off gain and government relief) increased 68% y-o-y to S$51m – aided by improving economic activity in Singapore and the UK as COVID-19 related restrictions have been relaxed.

A Surprise Special Dividend for Investors

• ComfortDelGro announced an interim dividend of 2.85 cents, which implies a payout ratio of 70% excluding the exceptional gain from the sale of the Alperton property in London.
• On top of that, the one-off gain from the sale of the London property was paid to investors as 1.41 cents of a special dividend.

Tweaking Earnings Forecasts; ComfortDelGro's Valuations Are Still Reasonable

• We have lowered our 2022-2024F profits forecast for ComfortDelGro by 2-4%. Our DCF-derived S$1.75 target price implies 17.7x 2023F P/E. While this is higher than ComfortDelGro’s 10-year average of ~16x, it seems reasonable – in view of its ongoing earnings recovery.
• ComfortDelGro's share price is trading at 14.7x 2023F P/E. Our target price also includes a 12% ESG premium over the S$1.56 fair value, based on our proprietary in-house methodology.

• Downside risks:
  • Extension of rental rebates to Singapore taxi drivers beyond Sep 2022;
  • continuing decline in its taxi fleet size;
  • lower-than-estimated Singapore bus revenue amidst amended bus contracts;
  • lower margins for key businesses; and
  • the UK witnessing a sharp decline in economic growth.

Source: RHB Invest Research - 15 Aug 2022