On the road to recovery
? While Covid-19 Omicron variant has dampened mobility in Jan/Feb, we note
the meaningful recovery across CDG’s key operating geographies in Mar.
? Rail ridership recovery and new framework agreement with LTA should help
boost CDG’s public transport segment operating profit by 50% in FY22F.
? Taxi segment should also benefit from lower rental rebates yoy, but pace of
reduction could be limited near term. Reiterate Add and TP of S$1.80.
Mobility recovering in Mar post Omicron speedbump
While the surge in Covid-19 cases arising from Omicron variant has dampened mobility
from Dec 21 to Feb 22, Google Mobility showed meaningful recovery across CDG’s key
geographies (Singapore, UK, Australia) in Mar, in line with easing Covid-19 restrictions.
We expect further recovery in 2Q22F, with the Singapore government taking a decisive
step towards the nation’s reopening. Gathering size limit doubled to 10 effective 29 Mar,
sale and consumption of alcohol was allowed beyond 10:30 pm, and up to 75% of
employees were allowed back to office (from 50%). Border restrictions were also largely
lifted, as vaccinated travellers into Singapore are no longer required to take designated
vaccinated travel lane (VTL) flights or undergo an ART test within 24 hours of arrival.
New framework agreement with LTA a net positive for FY22F
CDG’s rail ridership was at 70% of pre-Covid levels in Mar 22 (Feb 22: 66%); we forecast
recovery to 85% of pre-Covid levels by end-FY22F. Aside from rail ridership recovery, we
believe its framework agreement with the Land Transport Authority (LTA) will contribute
positively to earnings in FY22F, partially making up for the absence of wage subsidies
under the Job Support Scheme (JSS). Under the new agreement, CDG’s Downtown Line
(DTL) has undergone a license charge structure change; we estimate this will cut rail
segment losses by at least S$30m p.a. from FY22F. Meanwhile, the lower service fee for
renewed bus contracts (-S$11m impact for FY22F) will only be effective from Sep 22F.
Taxi fares raise, but driver rental rebates might take time to narrow
In view of higher fuel prices and operating costs, both taxi and private hire platforms have
raised base fares to ease cost burden on the drivers. Based on our channel checks,
dynamic pricing for point-to-point transport operators have been rising YTD, and is
currently at 20.5-38.5% of Jun 21’s levels. However, aggressive promotional campaigns
currently offered by ride-hailing platforms in Singapore could limit CDG’s ability to narrow
taxi rental rebates (15%) offered to its drivers in the near term, in our view.
Reiterate Add and TP of S$1.80
While we think CDG could see tough comps on a yoy basis for its 1Q22F earnings, we
reiterate Add as we expect 34% EPS growth in FY22F from ridership recovery in the
coming quarters. We lower our FY22-24F EPS forecasts by 3.5-6.8% on the back of
lower taxi rental rate assumptions. Our TP is kept at S$1.80, still based on 16.8x CY22F
P/E (0.5 s.d. above CDG’s 5-year historical average). Re-rating catalysts include stronger
ridership recovery. Downside risks include resumption of strict Covid-19 measures.