Worth betting on this attractively priced ride
- Huge mismatch between share price performance and improving fundamentals
- Singapore taxi pivot to commission sharing provides more upside levers, besides just fleet expansion
- Sep’22 rail ridership shows steady m-o-m increase, 50% y-o-y surge and now just 12% below 2019 levels
- BUY, TP: S$1.95. Upside > downside with valuation at <1x PB, 12.3x FY23F PE, 2.6x EV/EBITDA and 5.9% yield
Investment thesis
Huge mismatch between recovery and valuations; reiterate BUY on CD, TP: S$1.95. Even though ComfortDelGro (CD) is in the slow lane of passenger land mobility, the dismal performance of its share price despite improved mobility amid easing restrictions in recent times is an enigma to us. One possibility is that the market could still be fixated on the impact of COVID-19 in the past two years and ignoring its steady recovery as well as its pivot in its business.
Of note, we are optimistic on CD for: (i) Recovery and potential upside to its taxi segment performance; (ii) public transport ridership having a steady m-o-m improvement and at c.90% of pre-COVID; and (iii) valuations being at a historical low despite a steady return to recovery. We also expect its upcoming 3Q22 business update to show y-o-y and q-o-q sequential improvement. Furthermore, we believe its defensive traits, net cash position, and steady business (notwithstanding further lockdowns) will help weather the current uncertainties.
CD is now trading at EV below GFC levels; is it warranted? As of 18 October 2022, CD’s EV has fallen below S$2.6bn, (below levels last seen in GFC). This is despite CD’s strong earnings recovery in 1H22 and expected continued improvement in 2H22 and FY23F. We believe the weak share price is likely due to a combination of rising risk-free rates which affects the overall market and perceived negative outlook on the taxi business.
