Brokers' take

Singapore Post | Buy

Target price: S$1.77

Oct 4 close: S$1.495

UOB Kay Hian Research, Oct 4

SINCE the unfolding of corporate governance issues in December 2015 and management changes, the share price of Singapore Post (SingPost) has retreated almost 30 per cent from its peak in early 2015. While some decline is warranted, we believe the market has not priced in its growth assets in e-commerce and logistics. We changed our valuation methodology from discounted cash flow to sum-of-the-parts to better reflect the valuation of each business segment. Upgrade to "buy" with a higher sum-of-the-parts target price of S$1.77 (previously S$1.53). . . We are cognisant that there remain uncertainties on SingPost, particularly with regard to the Alibaba second tranche investments, CEO change as well as lingering corporate governance concerns and kitchen sinking in FY2017. In addition, we see a potential for dividend cuts, as the group may adopt a dividend policy payout to align dividends with earnings. Nevertheless, what investors can look forward to in the next 12 months will be the appointment of a new CEO, initiatives by its new chairman and directors to improve corporate governance, as well as a focus on integrating the new acquisitions.

ComfortDelGro Corp | Buy

Target price: S$3.10

Oct 4 close: S$2.86

OCBC Investment Research, Oct 4

IN our view, with Grab and Uber still engaging in activities to gain market share, rental car population is likely to continue its growth in the near term.

As a result, we expect ComfortDelGro's (CDG) taxi earnings growth to slow or remain flat as CDG: (1) slows down its fleet growth to prevent idling fleet, and (2) possibly increases incentives to retain/attract existing/new taxi hirers. That said, we note that Grab and Uber are still trying to gain market share by lowering base fares, and boosting their drivers' income through attractive incentives, which in our view are unsustainable over the long run.

Furthermore, CDG's management noted in its H1 2016 earnings call that 80 per cent of its taxi hirers' trips are still street hail, with the remaining 20 per cent done through bookings. In our view, this indicates that driving a traditional taxi full-time generates more stable and higher monthly income compared to driving for Uber/Grab(with lower or without incentives). Hence, we think an exodus of CDG's existing taxi hirers is an unlikely scenario, and expect CDG's taxi earnings to remain resilient as long as management continues to focus on ensuring high (more than 90 per cent) hired-out rate of its taxi fleet.

Compiled by Kenneth Lim

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.