Broker's take: DBS upgrades ComfortDelGro to 'buy' on valuation grounds

FOLLOWING a 10 per cent slide in ComfortDelGro shares this year due to the outbreak of the novel coronavirus, DBS Group Research has upgraded the transport operator to "buy" on valuation grounds, but lowered its price target to S$2.45.

As at Wednesday's closing price of S$2.14, ComfortDelGro shares traded at 15.8 times price-to-earnings and 1.7 times price-to-book - below their respective five-year averages. Shares in the transport operator were up S$0.07 or 3.3 per cent to S$2.21 at 10.35am on Thursday.

DBS analyst Andy Sim said: "While we acknowledge impact to ComfortDelGro's China operations from the outbreak of the novel coronavirus (2019-nCoV), we believe this to be temporary and manageable."

Given that its Chinese businesses account for 4 per cent of group revenue and 9 per cent of operating profits, he added that the dip in ComfortDelGro shares in 2020 has already priced in the negatives.

Moreover, with the 2003 Sars experience, we see the company better prepared this time round, and the impact is likely to be only temporary, in our view," Mr Sim noted.

With ComfortDelGro due to report FY2019 earnings on Feb 14, Mr Sim expects Q4 bottom line to fall by 7 per cent to around S$77-78 million from the year-ago period. The expected decline is largely due to the absence of a one-off gain of S$7.7 million due to the sale of a JTC site by its inspection business unit in Q4 FY2018.

Net profit for FY2019 is forecast at S$294 million, a 3 per cent decline from FY2018. DBS expects the company to propose a final dividend of 6.15 Singapore cents for FY2019.

Risks to DBS's recommendation include a prolonged and further deterioration of the outbreak into a pandemic, which could lead to major disruptions to taxi and public transport services.