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Brokers' take: Analysts like ComfortDelGro, cite green shoots in Singapore

ComfortDelGro - BT file.jpg
According to CDG, taxi ridership has recovered to about 80 per cent of pre-Covid levels as at end-September.

TRANSPORT behemoth ComfortDelGro (CDG) is a "buy", given that it is seeing recovery in Singapore and other key markets as the Covid-19 situation remains under control, market observers say.

Both RHB and CGS-CIMB have a target price of S$1.70, representing a 13.3 per cent upside from the counter's Nov 13 close of S$1.50, while Maybank Kim Eng is slightly more optimistic with a 12-month price target of S$1.76.

As at 1.17pm on Friday, CDG shares were trading flat at S$1.50.

The transport operator on Thursday posted a net profit of S$21.7 million for the third quarter ended Sept 30, down 69 per cent from S$70 million in the year-ago period, but improving from its net loss in the first half of the year. Earnings for the third quarter also represent a recovery from its Q2 net loss of S$42 million.

In a research note on Friday, Maybank KE said: "We are seeing green shoots in countries such as Singapore (55.1 per cent of earnings before interest and taxes), Australia (18.9 per cent) and China (3.4 per cent) as the Covid-19 situation is under control."

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The brokerage added that Singapore is expecting a gradual resumption of business activities and is negotiating with countries on travel bubbles. As the Republic is seeing more travel activities, Maybank KE does not expect substantial rental rebates going forward.

Likewise, CGS-CIMB analysts Ong Khang Chuen and Cezzane See foresee mobility to improve in Q4, helped by further easing of social-distancing measures locally, including the relaxation of work-from-home arrangements, and a potential move to Phase Three of reopening.

According to CDG, ridership of rail, bus, and taxi has recovered to about 55 per cent, 70 per cent and 80 per cent of pre-Covid levels as at end-September. "We forecast both the taxi segment and SBS Transit to return to the black in Q4, with further moderation in taxi rental rebates and rail ridership recovery," added Mr Ong and Ms See.

With the Covid-19 situation in Melbourne brought under control, movement restrictions were lifted in October. In China, social activities have almost resumed to pre-Covid levels, according to CDG. Meanwhile, analysts across the board are expecting CDG's operations in the UK to be lacklustre, as the country is now in a second lockdown.

That said, they noted there is value in the stock, now that "the worst is over".

Maybank KE noted that CDG's long-term fundamentals are intact and that its share price rebounded 75 per cent in the eight to 10 months following Sars, or the severe acute respiratory syndrome. It added: "We believe longer-term public policy support and environmental, social, and corporate governance imperatives will continue to structurally favour public transport over private vehicle ownership."

As Singapore is still the biggest earnings contributor for CDG, analysts Mr Ong and Ms See are expecting continued earnings recovery in Q4 and forecast core net profit of S$51 million (+30 per cent quarter on quarter, -33 per cent year on year) for the quarter ahead. The CGS-CIMB analysts also see net profit recovery in FY2021.

Similarly, RHB analyst Shekhar Jaiswal expects strong earnings growth for CDG next year. He said that RHB's target price implies a 17.7 times price-to-earnings (P/E) ratio for 2021, which is slightly higher than CDG's 10-year average P/E of 15.7 times. In addition, the company is trading at a record low of 1.2 times its price-to-book value, which fails to capture the improvement in return on equity, Mr Jaiswal said.

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