UOBKH: ComfortDelGro Corporation – Buy Target Price $1.73

1H22: In Line As Ridership Improves

CD reported 1H22 PATMI of S$118.7m in (+30.4% yoy), in line with our expectations. Public transport services saw an improvement in bus charter services in the UK and Australia, coupled with higher fuel indexation revenue and rail ridership. With the relaxation of most COVID-19 measures in Singapore, pent-up demand has supported taxi revenue and earnings. We opine that there is some upside at the current attractive price levels. Maintain BUY with an unchanged target price of S$1.73.

RESULTS

• 1H22: Post COVID-19 recovery. In line with expectations, ComfortDelgro Corporation (CD) reported 1H22 revenue and PATMI of S$1,859.9m (+6.7% yoy) and S$118.7m (+30.4% yoy) respectively, accounting for 48.8% and 52.0% of our full-year forecasts respectively. 1H22 core operating profit (excluding government relief and one-off adjustments) increased 67.8% yoy to S$127.0m, backed by improving economic activity in key markets. Relevant indexations have also helped mitigate inflationary pressures, supporting margins. For 2Q22, revenue and PATMI grew 11.9% and 30.4% respectively, backed by increased rail ridership and taxi passenger demand.

• Special dividend declared. CD declared an interim dividend of 2.85 S cents, implying a 70% dividend payout ratio and yield of ~4.1%. Furthermore, due to the sale of the Alperton property in 1Q22, CD declared a special dividend of 1.41 S cents, implying an additional gyspecial dividend yield of ~1%.

• Public transport: Recovery on track. 1H22 segmental revenue grew 8.1% yoy to S$1,486.1m while operating profit was robust at S$122.8m (+48.8% yoy), aided by improving rail ridership in Singapore along with higher fuel indexation revenues. Improvement in charter services in Australia and the UK also supported earnings as most COVID-19 restrictions were relaxed. Both 1H22 segmental revenue and operating profit were in line with our expectations, forming 50.1% and 59.2% of our full-year forecasts. The beat in operating profit was due to the net gain in disposal for the Alperton property in 1Q21, and we expect operating profit to normalise in 2H22. 1H22 core operating profit surged 124.3% yoy, underpinned by a strong 2Q22 (+188.1% yoy). Based on 1H22 segmental results, CD is poised to post 5.1% yoy and 58.8% yoy growths for its full-year 2022 segmental revenue and operating profit respectively, underpinned by a stable recovery in ridership.

• Taxi: Dragged by rental waivers… Largely in line with our expectations, 1H22 taxi revenue moderated slightly (-6.5% yoy) even as demand for Point to Point (P2P) trips picked up in 2Q22, forming 48.4% of our full-year forecasts. However, the yoy decline was largely due to ~S$10m of rental waivers given in China, coupled with a loss of ~S$9m in revenue from the divestment of CD’s London taxi business in 2H21. After adjusting, 1H22 taxi revenue would have largely been stable yoy and accounted for 52.7% of our full-year forecasts. 1H22 taxi operating profit grew 18.4% yoy and formed 45.7% of our full-year forecasts, while 1H22 core operating profit surged 77.5% yoy, driven by pent-up P2P demand in Singapore. As China carries on with its zero-COVID policy, we reckon rental waivers may yet persist into 2H22 due to sporadic COVID-19 lockdowns.

• …but beneficiary of pent-up demand. Singapore is facing a sharp spike in demand for P2P trips, driven by the relaxation of most COVID-19 restrictions in 2Q22. Management noted that taxi bookings levels are still growing past pre-COVID 19 levels and have not reached a plateau, thus boosting taxi drivers’ earnings above pre-pandemic levels. Taxi fleet utilisation has also improved slightly in 2Q22 as taxi drivers start to gradually return to the industry. Moving forward, the current 15% discount on taxi rentals is still expected to last till end-Sep 22, whereby a further extension will be later decided on. With elevated fuel costs and a structural decline in the number of taxi drivers, we are of the view that the discount on rentals would be extended or reduced slightly to attract/retain taxi drivers, which may weigh on taxi segment profitability.

EARNINGS REVISION/RISK

• No change to earnings.

VALUATION/RECOMMENDATION

• Maintain BUY with a 2022F PE-based target price of S$1.73, pegged to CD’s average five-year mean PE of 16.4x.

• In our view, backed by improving fundamentals, CD remains poised to see a gradual recovery in ridership levels in the medium term as key markets recover and international travel resumes.