Broker's take: DBS says market hasn't priced in Phase Three reopening for ComfortDelGro

DBS Group Research on Thursday said that the market has not priced in a Phase Three Singapore reopening for ComfortDelGro Corporation, raising its target price to S$1.96 from S$1.63 and reiterating its "buy" call.

Shares of the mainboard-listed transport operator slipped S$0.02 or 1.3 per cent to S$1.49 as at 11.02am on Friday.

Referencing community mobility data from Google, DBS analyst Andy Sim said there has been a gradual increase in mobility since the Phase Two reopening on June 19, indicating that people have been moving around more.

"With the continued low infection rates and potential for further easing in Singapore towards Phase Three, we could see mobility figures take a further turn up," he said. Thus, a Phase Three reopening could be a near-term catalyst.

Mobility figures for residential areas should drop, while those for transit, retail and recreation and workplaces should increase as seen in Phase Two, Mr Sim added. This comes as more workers return to offices, leading to a rise in commuting.

Mr Sim said ComfortDelGro is trading at 1.2 times price-to-book ratio at -2 standard deviation of historical means as return on equity jumps to about 9 per cent in his forecast for fiscal 2021. He added its current price "seems unjustified" and that investors should look beyond the fiscal 2020 forecast.

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The research team said it is keeping watch on potential consolidation of the point-to-point industry, with smaller private rental car fleet providers exiting the market and bringing a balance to the point-to-point supply-demand dynamics.

In a separate research report dated Aug 31, Maybank Kim Eng reiterated its "buy" call on ComfortDelGro, with a target price of S$1.76. The brokerage said the worst quarter for ComfortDelGro is over and recovery play is on track.

"Ridership should recover on easing of social-distancing measures, while increasing traffic flows signal recovery in transport demand," Maybank Kim Eng analyst Kareen Chan said.

Both Maybank Kim Eng and DBS are expecting rental rebates to be reduced progressively. The former is expecting the scaleback on rental relief by year-end, while the latter projects rental rebates to continue beyond September 2020 at a lower rate.

"There is no indication on what ComfortDelGro will be providing post-September, but we are watching out for further reduction of rental rebates as an early sign towards further improvements after this current round," DBS's Mr Sim said.