Broker's take: RHB says to take profit on ComfortDelGro, remains bullish on prospects

RHB Research Institute has advised the brokerage's clients to take profit on ComfortDelgro as the counter has been trading close to its fair value, adding that investors could consider buying shares if the taxi operator's stock price falls below S$2.50.

The brokerage has a target price of S$2.65 for the stock. ComfortDelGro shares were trading flat at S$2.59 as of 1:45pm on Wednesday.

RHB said it is still bullish on the taxi operator's prospects. Analyst Shekhar Jaiswal said in the report: "We remain positive on ComfortDelGro's growth in the public transportation business, profit contributions from new acquisitions and likely improvement in taxi earnings amidst a lack of competition from ride-hailing players."

Even though ComfortDelGro's rail business has continued to suffer losses, its public transport business - its biggest revenue driver - will continue to be a key driver for growth in the near term. Mr Jaiswal said this would be down to organic growth in Singapore and contributions from its recent acquisitions in Australia.

"With negligible downside risk for its bus business in Singapore, the reduction in losses from its rail business could support higher earnings growth over the next 2-3 years," he added.

As more hybrid taxis, which have higher daily rental rates, are brought in to replace older diesel engined ones, RHB said that it should translate to improved taxi earnings for ComfortDelGro, barring an increase in competition from ride-hailing players Grab and Gojek.

Moreover, the company has ample debt head room, which would provide for opportunities at inorganic growth, if and when acqusitions are made.

Mr Jaiswal said: "While we moderate 2019-2021 earnings estimates to account for slower improvement in taxi earnings, we maintain that earnings-accretive acquisitions and higher-than-estimated improvements in its taxi business offer near-term upside risks."