1Q22: Mixed Results Due To Omicron
CD reported core operating profit of S$64.6m in 1Q22 (+26% yoy), slightly below our
expectation. Public transport services saw an improvement as key markets have
eased most social distancing measures. The taxi segment was hit by an Omicron
wave in China and a smaller fleet size. Ridership levels are set to recover as social
mobility rebounds. Trading at -1SD of its long-term mean PE, there is potential
upside at the current price levels. Maintain BUY with a lower target price of S$1.66.
RESULTS
• 1Q22 results slightly below our expectations. ComfortDelgro Corporation (CD) reported
1Q22 revenue and PATMI of S$895.9m (+3.9% yoy, -2.1% qoq) and S$76.7 (+30.4% yoy,
+476.7% qoq) respectively, making up 23.9%/33.8% of our full-year estimates. However,
adjusting for an around S$30.4m net gain on disposal of CD’s Alperton property in the UK,
adjusted PATMI would amount to about S$46.3m (-17.6% yoy, +248.1% qoq), forming 20.4%
of our full-year forecasts and below our expectations. Core operating profit (excluding
government relief and exceptional items) grew +25.7% yoy and +20.5% qoq, slightly below our
expectations although higher social mobility, driven by easing social distancing measures,
boosted ridership levels. Operating costs increased 8.4% yoy as most government reliefs in
1Q22 (S$4.7m) have tapered off as compared with 1Q21 (S$33.4m).
• Increased ridership in key markets. With the exception of China, ridership levels in key
markets have increased as most social distancing restrictions were relaxed. In Singapore, rail
ridership at end-1Q22 has reached 70-75% of pre-pandemic levels while international borders
have fully reopened. The UK and Australia have also transitioned to endemic living as most
social restrictions have been eased, along with the resumption of international travel.
• Public transport: Slower quarter due to Omicron. 1Q22 revenue was mixed at
S$712.0m (+6.0% yoy, -3.4% qoq), with the qoq decline largely due to the emergence of
the Omicron variant. However, core operating profit was robust (+83.1% yoy, +43.6%
qoq), aided by increased yoy ridership levels due to easing of restrictions as well as
excluding substantial government relief in 2021. As more companies revert back to workfrom-office arrangements coupled with increasing tourist arrivals, CD noted that it expects
current rail ridership levels of 70-75% of pre-COVID-19 levels to improve moving forward.
Public transport schedules in Australia remain stable while public bus services in the UK
are operating on full schedules with bus chartering service levels also picking up.
• Taxi: Affected by lockdowns and rental rebates. Taxi revenue was lower yoy (-11.2%
yoy, +3.3% qoq) due to ongoing lockdowns in China, divestment of its UK taxi business
as well as a smaller taxi fleet size in Singapore. Core operating profit (-24.8% yoy, -6.8%
qoq) fell as rental rebates continued coupled with depressed ridership levels in 1Q22
caused by the emergence of the Omicron variant. The current 15% discount on taxi
rentals has been extended till Sep 22, although a newly-imposed 4% commission on taxi
bookings would mitigate some impact from the extended rental rebates. Management has
noted that the historical ratio of street hail to online bookings (70:30) has gradually shifted
to 55:45 in favour of street hail as more passengers transition to CD’s new booking app.
Taxi bookings through the app have been strong, higher than pre-pandemic levels. With
the new 4% commission in place, this would help expand margins for the taxi segment.
• In China, lockdowns in major cities such as Shanghai and Jilin have affected profitability,
as CD provided rental rebates for taxi drivers that have undergone quarantine. As the
COVID-19 situation improves in the kingdom, management is cautiously optimistic that
2Q22 would experience a slight recovery in ridership levels and earnings. Looking
forward, overall taxi ridership levels are expected to pick up as social mobility improves.
EARNINGS REVISION/RISK
• Lower our 2022-24 earnings by 2-4%. To account for a slower-than-expected recovery
and higher operating costs, we have lowered our 2022-24 earnings by 3.75%, 2.27% and
3.80% yoy respectively.
VALUATION/RECOMMENDATION
• Maintain BUY with a lower 2022F PE-based target price of S$1.66 (S$1.73
previously), pegged to CD’s average five-year mean PE of 16.4x. The lower target price
is due to lower 2022 earnings forecasts. In our view, backed by improving fundamentals,
CD remains poised to see a gradual recovery in ridership levels in the medium term as
COVID-19 measures ease and international travel resumes.
• However, we reckon that there are no strong near-term catalysts that would cause CD to
trade at a higher valuation. Furthermore, due to the emergence of the Omicron variant in
1Q22, CD’s post-pandemic recovery is slightly below our expectations. Hence, we have
taken a conservative approach and pegged our PE multiple to CD’s five-year mean PE.
SHARE PRICE CATALYST
• Larger-than-expected increase in tourist arrivals.
• Bus tender contract wins.
• Earnings-accretive overseas acquisitions.
• Regulatory changes in public transport.