Emerging sustainability play
- FY21 PATMI jumps 114.0% y-o-y to S$130.1m
- Reopening-led recovery expected as key markets relax restrictions
- Fears of high energy cost valid, but could be mitigated to a large extent
- Maintain BUY with a lower TP of S$1.95
Investment Thesis
Major reopening beneficiary as mobility gradually trends towards normalisation. We are forecasting CDG’s FY22F net profit to rise c.26% y-o-y as CDG’s key segments see increased ridership and demand. The Group’s key markets (The UK, Singapore, and Australia) are moving towards treating COVID-19 as endemic, underpinned by vaccines and COVID-19 pills. Indeed, mobility trends in Singapore have already begun to normalise, and early indications point to a wider reopening once the Omicron wave subsides.
Ride hailing public listings could signal less intense competition. With Grab set to list via a SPAC in the US and GoTo possibly looking to IPO soon, CDG’s private-hire competitors may be subject to increased scrutiny, which could reduce aggressive promotions and competition.
Evolving into a sustainability play. CDG has embarked on multiple initiatives to green its business segments. The Group has invested in green projects that include the provision of EV charging infrastructure and a greening of its bus and taxi fleet which could potentially pave the way for inclusion in ESG indices.
Valuation:
Maintain BUY with lower SOTP-based TP of S$1.95. Our TP is based on our target prices for SBS Transit and VICOM, and 6.5x FY22F EV/EBITDA for CDG’s remaining businesses (including CDG Australia).
Where we differ:
Consensus earnings for FY22F vary widely. We expect sequential quarterly improvements in FY22F, led by recovery and pick-up of transit mobility.
Key Risks to Our View:
High COVID-19 hospitalisations and deaths leading to reinstatement of pandemic restrictions, intense competition from ride hailing competitors leading to further contraction in taxi fleet, loss of bus contracts, and changes in regulations affecting operations.