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Brokers' take: RHB upgrades ComfortDelGro to 'buy'; CGS-CIMB, DBS maintain
FOLLOWING ComfortDelGro's announcement of higher earnings for 2018, RHB Research Institute has upgraded ComfortDelGro from "neutral" to "buy", while CGS-CIMB and DBS are maintaining their "add" and "buy" calls on the stock, respectively.
RHB has also raised its target price from S$2.35 to S$2.65. CGS-CIMB's target price is S$2.74, while DBS is targeting S$2.57.
As at 10.14am, Comfort's counter was trading 1.68 per cent or S$0.04 higher, at S$2.42.
"Resilience in its taxi business during Q4 2018 surprised us," said RHB analyst Shekhar Jaiswal. He pointed out how despite the launch of Gojek in Singapore, Comfort's taxi business bucked a trend of quarter-on-quarter (q-o-q) decline in earnings before interest and tax (Ebit) during Q4 and delivered S$33.5 million of Ebit (unchanged q-o-q) with a slight improvement in margin.
CGS-CIMB analyst Colin Tan believes the worst is over for Comfort, as "ride-hailing firms have cut back on drivers’ incentives". He noted that Comfort has taken delivery of over 900 new hybrid taxis (commanding higher rental rates than older models) with orders placed for another 600 new models to be delivered over the next few months for fleet replacement.
Agreeing, DBS equity analyst Andy Sim also said "we should not see competition escalate to that seen during the times of Uber/Grab".
Additionally, Comfort's public transport services business, which led revenue contributions for 2018, is expected to continue driving growth this year, according to the analysts.
They mainly attributed it to full-year contributions from Seletar and Bukit Merah bus packages, potentially higher revenues from Comfort's Australian bus business, and a 4.3 per cent increase in public transport fare this year.
Finally, the analysts noted the potential for more acquisitions.
CGS-CIMB's Mr Tan said: "Having made about S$470 million worth of acquisitions in FY18, Comfort still seeks viable acquisitions overseas to boost its cash-flow generation and could comfortably gear up if necessary."
Acquisition targets would likely only be in developed countries due to lower inherent risks, he added.