Better taxi economics ahead
- 1Q22 revenue up 4.6% y-o-y; in line with forecasts
- Rail ridership on the verge of posting post-COVID high
- Point-to-point vehicle shortage could support taxi fleet recovery
- Maintain BUY with TP of S$1.95
Investment Thesis:
Major reopening beneficiary as mobility gradually trends towards normalisation. The group’s key markets (the UK, Singapore, and Australia) are moving towards living with COVID-19, underpinned by vaccines and COVID-19 therapeutics. Indeed, mobility trends in Singapore have already begun to normalise amidst the ongoing reopening. As such, we are forecasting CDG’s FY22F net profit (pre ex) to rise c.27% y-o-y as CDG’s key segments see increased ridership and demand.
Public listings of ride hailing companies could pave the way for less intense competition. With Grab listed via a SPAC in the US and GoTo’s listed in Indonesia, CDG’s ride-hailing competitors may be subject to increased scrutiny, which could reduce aggressive competition and improve the economics of renting taxis. In turn, CDG’s rental taxi fleet could reverse its declining trend.
Evolving into a sustainability play. CDG has embarked on multiple initiatives to turn its business segments green. 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 a TP of S$1.95 based on a blend of forward EV/EBITDA and PB valuations. We peg CDG to a forward EV/EBITDA of 5.3x and PB of 1.25x, both of which represent the -1SD level from the 10-year mean.
Where we differ:
Consensus earnings for FY22F vary widely. We expect sequential quarterly improvements in FY22F, led by recovery and the pick-up of transit mobility.
Key Risks to Our View:
High COVID-19 hospitalisations and deaths, leading to reinstatement of pandemic restrictions, and intense competition from ride-hailing competitors leading to large contractions in taxi fleet and loss of bus contracts.