Living With COVID-19
As Singapore moves on from the COVID-19 pandemic, we expect ridership to improve.
Relaxation of COVID-19 measures has improved rail ridership while taxi passenger
demand has surged. Singapore’s taxi industry is facing worsening demand-supply
imbalance and stiff competition from ride-hailing competitors. CD has also won a new
public bus contract in Australia, expanding its footprint down under. Maintain BUY with
a slightly higher target price of S$1.73 (S$1.66 previously).
WHAT’S NEW
• Transition to endemic living. From 26 Apr 22, Singapore’s authorities announced the
easing of most of its social distancing measures. Some of the relaxed measures include the
removal of group size limits, safe distancing no longer being mandatory and 100% of
workers are now allowed to return to their respective workplaces. Furthermore, Singapore’s
international borders have fully reopened, welcoming back tourists. Backed by a population
that is almost fully vaccinated, these favourable tailwinds would help underpin
ComfortDelGro Corporation’s (CD) public transport and taxi earnings as mobility improves.
• Improving ridership. SBS Transit experienced a strong recovery in rail ridership for May 22
(+56.8% yoy, +4.6% mom), forming 81% of pre-pandemic levels (May 19). We reckon that
this is due to more office workers returning to office spaces and the removal of dine-in group
size limits. According to Land Transport Authority (LTA), passenger demand for point to point
trips has gradually improved, albeit seeing slight dips due to COVID-19 outbreaks. Overall,
we expect rail and taxi ridership to reach near pre-pandemic levels by 1Q23.
• Expanded bus services down under. ComfortDelgro Corporation Australia has been
awarded a six-year contract to solely operate public bus services in Northern Territory,
Australia. The contract areas cover a significant part of Northern Territory’s network which
includes Darwin and Palmerston, with 170 buses operating across 180 bus routes. Expected
to commence on 1 Jul 22, the contract is estimated to be worth around A$220m. Based on
our estimates, this new bus contract would boost our 2022-24 PATMI estimates by 2-3%.
STOCK IMPACT
• Domestic taxi: Demand-supply imbalance. Singapore is facing a shortage of taxi drivers
to meet the surging demand. According to the LTA, the number of taxis and taxi driver’s
vocational licence (TDVL) issued has shrunk since 2019. CD’s taxi fleet has also been on a
continuous downtrend along with Singapore’s total taxi fleet. After two years of
underwhelming demand due to COVID-19 lockdowns, many taxi drivers have retired or
opted for better-paying industries, reluctant to return to an industry that is facing elevated
petrol prices and eroded earnings. Before Singapore’s government raised the age limit for
private-hire driver’s licence to 30 years in Sep 20, younger drivers (below 30 years) tend to
join the ride-hailing industry as a short-term gig. CD’s restrictive 30 years age requirement
created an entry barrier for younger drivers to become new taxi drivers. Even after a price
hike in Mar 22, CD has been largely unsuccessful in attracting new drivers or getting taxi
drivers to return as many drivers have exited the industry completely. Due to these structural
changes, we reckon CD may have to increase/extend incentives further to retain/attract taxi
drivers, dragging down profitability.
• Supply to remain tight. Stiff competition from other ride-hailing operators has also caused
many taxi drivers to make the jump. Through our channel checks, drivers in Singapore
prefer CD’s ride-hailing competitors such as Grab and Go-Jek as they have lower daily
rental rates and greater incentives, despite CD having the lowest commission rate. Grab’s
and Go-Jek’s cheaper daily rental rates make it easier and quicker for drivers to break even,
a vital factor most drivers consider. A positive for CD taxi drivers is that they are allowed to
pick up passengers via street hail while the rest cannot. However, as more passengers shift
to online bookings, this advantage may be mitigated in the long run.
EARNINGS REVISION/RISK
• We increase our 2022-24 PATMI forecasts by 2-3%, after accounting for new earnings
contribution from the Northern Territory contract. We also did a sensitivity analysis against
our utilised taxi assumptions. For 2022, we have assumed an average utilised fleet of 8,300
(currently around 8,600) and a daily rental rate of S$90. We expect the taxi segment to post
a 149% yoy increase in operating profit to S$46m as demand recovers. For every 100
increase/drop in utilised taxis from 8,300, it would increase/decrease our 2022 PATMI
forecast and target price by 0.8% and S$0.01 respectively.
VALUATION/RECOMMENDATION
• Maintain BUY with a higher 2022F PE-based target price of S$1.73 (S$1.66 previously),
pegged to CD’s average five-year mean PE of 16.4x. The higher target price is due to higher
2022 earnings forecasts from the new Northern Territory contract.
SHARE PRICE CATALYST
• Bus tender contract wins, earnings-accretive overseas acquisitions.