Brokers' take: Analysts cut ComfortDelGro TP on lower earnings estimates; say outlook still promising

COMFORTDELGRO C52 is likely still a major beneficiary of an economic reopening, although its earnings may be weighed by higher costs, said analysts.

In a report on Wednesday (Mar 2), DBS Group Research cut its target price on ComfortDelGro to S$1.95 from S$2.06, after lowering earnings estimates by 21 per cent in FY2022 and 17 per cent in FY2023.

The research team had revised margin assumptions to account for lower Covid-19 relief as well as higher energy costs.

Meanwhile, RHB, in a report on Tuesday, cut its target price to S$1.77 from S$1.90, after reducing earnings estimates by 8 per cent in both FY2022 and FY2023 to account for higher cost inflation, especially on staff costs.

Shares of CDG were trading flat at S$1.43 as at 10.01 am on Wednesday.

The transport operator on Monday posted a 9.1 per cent on-year growth in revenue to S$3.5 billion for FY2021, while net profit was up 114 per cent on year to S$130.1 million. It also noted that most of its government relief schemes have lapsed.

DBS noted that while revenue figures were in line with its estimates, its net profit had missed expectations amid a slower-than-expected recovery in its taxi and public transportation services businesses.

Although the research team expects the public transport services business will gain from a gradual reopening in Singapore, Australia and the UK, the segment may see limited growth since it had been a key beneficiary of Covid-19 relief from the government.

Meanwhile, the taxi segment could see a boost from the recent taxi fare hike and a further reopening of Singapore.

Additionally, the DBS research team also noted that ComfortDelGro is progressively emerging as an ESG (environmental, social, and governance) play, after investing in multiple green projects, which could pave the way for inclusion in ESG-focused indices.

As for RHB analyst Shekhar Jaiswal, he still expects the reopening of the economy and international borders in the next 6 months will support ComfortDelGro's earnings recovery, with improvement from its public transport services business, as well as lower rental discounts at its taxi business.

Jaiswal added that the counter's current share price, which has corrected around 14 per cent in the last 6 months, has likely priced in near-term negatives and offers a buying opportunity.

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