News Alert: ComfortDelGro – Bottomfish opportunity now with removal from the STI?
- CD to be replaced from STI at start of 19 Sep trading
- Removal from MSCI in May 2020 saw a knee jerk reaction
- Similar trend could follow; a bottomfish opportunity nearer to cut-over date
- Fundamentals unchanged with TP at S$1.95; BUY
What’s new?
CD to be replaced from STI at start of 19 Sep. In FTSE Russell media release on 1 Sep 22, it was announced that in the quarterly review of the Straits Times Index (STI), ComfortDelGro (CD) has been removed and will be replaced with Emperador. The constituent changes will take effect at the start of trading on 19 Sep 22.
With this review, the STI reserve list, in order of the five highest market capitalisation will be Olam Group, Suntec REIT, Keppel REIT, Frasers Centrepoint and Ascott Residence.
As of 1 Sep 2022, CD’s market cap stood at S$3.03 bn, smallest amongst the 30 STI constituents and the next smallest two are Keppel DC REIT (S$3.3bn) and Yangzijiang Shipbuilding (S$3.8bn).
Our views
Removal from MSCI in May 2020 saw a knee jerk reaction, with share price recovering thereafter. ComfortDelGro entered as a constituent in the STI more than 12 years ago on 28 Jul 2010 and this marks the end of its current tenure on the STI. It was also earlier on the MSCI Singapore Index but was removed back in 2020, with the announcement on 12 May 2020 and effective on 29 May 2020. There was a knee jerk reaction with share price falling by 7.7% from S$1.55 at the closing on 12 May 2020 before the announcement to $1.43 on 29 May 2020, at the date of removal. In the following week post the removal, CD’s share price bounced up by c.12% to close at $1.60, higher than before the announcement.
Similar trend could follow; a bottomfish opportunity nearer to cut-over date? Fundamentals unchanged with TP at S$1.95; BUY. With this removal, we expect an immediate knee jerk reaction to CD’s share price should it follow a similar trading pattern. That said, there has been expectation and talks of this removal for a while now in view of CD’s market cap hovering around the bottom of the 30 constituents. With this removal now a “certainty”, we take an opposing view given that it is a “removal” of an overhang. While there could be near term knee-jerk weakness in share price due to rebalancing by index funds, downside is likely to be confined within the coming few weeks, in our view.
Given unchanged fundamentals, an improving outlook, and the upside from easing COVID-19 restrictions and improving mobility, we retain our positive view on the counter. We also highlight a possibility to bottomfish near or around 19 Sep, when the constituent change takes effects. Retain BUY, TP:S$1.95.
