1H22 trending as expected; mid-year surprise special dividend
Reiterate BUY, TP: S$1.95. We reiterate our BUY recommendation with an unchanged TP of S$1.95. The counter’s price is and has been slow to shake off the impact from COVID given lingering restrictions such as China’s zero-COVID policy. Slowly but surely, activities are returning to norm, as we see activities and mobility increase in Singapore, Australia and the UK. Trading at 1.1x PB (-1SD 4 year average) with recovering profitability, and a projected yield of 5% (FY22F), we believe upside significantly outweighs the downside.
1H22 performance within expectations, +30.4% y-o-y.ComfortDelGro (CD) reported 1H22 attributable net profit of S$118.7m, equating to an improvement of 30.4% y-o-y, on the back of 6.7% increase in revenue to S$1.86bn. As of half-time, headline net profit accounts for 58% of our FY22F estimates. This includes gain on disposal of a property in London amounting to S$37.2m. Excluding this, like-for-like comparison on net profit would be c.48% of our FY22 forecasts, given expectations of sequential improvement in 2H22.
A pleasant interim (2.85 Scts) and special dividend (1.41Scts) declared. Beyond expectations of a further improvement in performance in 2H22, an interim dividend of 2.85 Scts equating to a payout ratio of 70% was declared. On top of that, a special dividend of 1.41Scts was also declared, which came out of the disposal gains of its Alperton property in London. In our view, this probably signals the Board/ management improved confidence in the group’s balance sheet and recovery from COVID restrictions seen in the past 2 years.
Group revenue improved by 6.7% to S$1.86bn, helped mainly from contributions in Singapore. If not for foreign exchange (FX) translation (S$33m), revenue growth would have been higher at 8.6%. Most of its business segments saw higher revenue, save for Taxi, Driving Centre and Bus Station.
1H22 operating profit excluding disposals and government reliefs surged by a strong 67.6% to S$126.9m, up from S$75.7m, contributed mainly from Public Transport, Taxi and Inspection & Testing, negated partially by losses in bus station. The group had S$57.2m in government reliefs in 1H21, and this has tapered significantly to S$9.8m in 1H22.
2H22 should show sequential improvement. While its operations in China (taxi and bus station) are still being impacted by the zero-COVID policy, we believe the easing restrictions elsewhere, particularly in Singapore, Australia and the UK should bode better for the group in 2H22. In its results announcement, the group has indicated that it “maintains a cautiously optimistic outlook for 2022”.
Segment results comments and earnings call take-aways
Public Transport segment revenue +8.1%, operating profit +48.4%. Revenue for the segment in 1H22 was at S$1.49bn (+8.1% y-o-y) mainly due to higher rail ridership and fuel indexation in Singapore. The strong operating profit growth was helped by its net gain on disposal of Alperton property in London and higher revenues. Excluding the disposal gain (S$37.2m), operating profit would still have been 3.8% higher at S$85.6m in 1H22.
We noted that there were government reliefs amounting to S$47.9m in 1H21 for its Public Transport segment, which have dropped to S$8.1m in 1H22. Excluding disposal gain and government reliefs, operating profit in 1H22 would have been S$76.5m, more than doubled that of 1H21 (S$34.1m). Besides higher ridership and fuel indexation, public transport benefited from private charter projects in Singapore and the UK
Taxi – a brighter spot in Singapore. Revenue for its Taxi segment decreased by 6.5% y-o-y to S$211.3m, mainly due to rental waivers in China (~S$10m) and absence of contribution from its London taxi business post divestment in 1H21 (~S$9m). This was partially mitigated by higher revenues in Singapore from lower rental discounts and higher call volumes. Operating profit for the segment was S$21.2m (+18.4% y-o-y), mainly from its Singapore operations.
Management shared that its taxi call bookings in Singapore have exceeded pre-COVID, while fleet size decline has stabilised with small uptick. Management is focusing on drivers’ recruitment though shared that it is challenging. The focus is to pivot towards keeping its vehicle rental rates competitive, with discounts, and pivot more towards revenue sharing model, ie taking a certain percentage of fare revenue via call bookings. This will lower the fixed cost barrier for drivers, while allowing the sharing of upside potential.
Automotive engineering’s revenue increased by 17.1% y-o-y to S$100.1m mainly due to higher fuel prices and volume. Operating profit, however, was lower by 16.1% to S$4.7m due to the lagged effect of higher fuel pump price increase vis-à-vis oil price increases as well as absence of government reliefs. With recent retreat in oil prices, there should be some let up in pressure and reversal of the trend in 2H22, in our view.
Other business segments. The other smaller business segments of the group were a mixed bag. Its Inspection and Testing business benefitted from recovery in activities while Car Rental and Leasing saw higher revenue from expansion in its PHV (Private Hire Vehicle fleet). Driving centre and Bus Station both saw lower revenues with the divestment of its Nanjing driving school in China in 1H22, while the latter continued to be impacted by China’s lockdown and travelling restrictions in 1H22.
Forecasts and Valuation
FY22F/ 23F earnings to continue its recovery path; raised our dividend payout expectations, Reiterate BUY, TP: S$1.95. We retain our FY22F/ 23F forecasts with expectations of 27%/ 24% (pre-exceptional) earnings growth. Our TP is based on the average 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. With the interim dividend of 2.85 Scts equating to 70% payout, along with the special dividend of 1.41 Scts declared, this gives us greater confidence in raising our expected dividend payout to c.70%, from ~55% previously.
Trading at 1.1x PB (-1SD 4 year average) with recovering profitability, and a projected yield of 5% (FY22F), we believe upside significantly outweighs the downside. BUY, TP: S$1.95.
