Broker's take: RHB raises ComfortDelGro's target price on less competitive taxi industry

RHB has maintained its "buy" recommendation for ComfortDelGro, while raising its target price on the transport behemoth to S$1.90, up from S$1.70 previously.

This comes amid a decline in the competitive intensity for its taxi business, analyst Shekhar Jaiswal wrote in a research note on Monday.

As at 11.38am on Monday, ComfortDelGro shares were trading at S$1.67, up S$0.03 or 1.8 per cent.

Just last week, HDT Singapore announced that it is pulling the plug on its electric-taxi business in the Republic, as the company has suffered a "prolonged, debilitating impact" with the coronavirus outbreak.

Recent news reports also suggest that Grab and Gojek have made substantial progress in working out a deal to combine their businesses, RHB noted.

"This merger, if confirmed, should reduce the competitive intensity in Singapore's taxi and private-hire car landscape, which has already witnessed a decline in demand this year due to the pandemic," said Mr Jaiswal.

He added that Grab could realign its focus away from the transport business in Singapore going forward.

The recent winning of the full digital bank licence by the Grab-Singtel consortium would mean that Grab will be busy building its financial services business over the next two years, as it plans to launch the digital bank in early 2022, RHB said.

Moreover, Covid-19 has accelerated Grab's food delivery business, which has grown rapidly from a relatively low base, Mr Jaiswal noted.

RHB has raised its 2021-2022 earnings estimates for ComfortDelGro by 3-4 per cent to account for a slightly higher utilisation rate for its taxi fleet.

"We maintain that gradual normalisation of business activities in Singapore and the company's other key overseas markets should support an improvement in public transport ridership, and a stabilisation of the taxi business during 2021," RHB added.

RHB's target price implies 19 times 2021 forward price-to-earnings (P/E) ratio, which is slightly higher than ComfortDelGro's 10-year average P/E of 16 times.

"The stock is also trading at a record low price-to-book value of 1.4 times, which does not capture the improvement in return on equity," Mr Jaiswal said.