Brokers' take: UOBKH cuts ComfortDelGro target after STI exclusion but still sees upside
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UOB Kay Hian (UOBKH) believes ComfortDelGro's (CDG) fundamentals remain intact despite expectations of short-term downward pressure on its share price performance, after the counter was dropped as a Straits Times Index (STI) constituent with effect from Monday (Sep 19).
The research house has lowered its price target on the transport operator to S$1.63 from S$1.73 previously after changing its valuation method.
It however maintains its "buy" call on the belief that the group remains poised to see a gradual recovery in its rail ridership levels, as well as taxi passenger demand, in the medium term.
A strong recovery in rail ridership - along with cost savings from the Downtown Line's transition to the New Rail Financing Framework Version 2 - would also help to partially mitigate an expected decline in bus service revenue, said UOBKH.
In a report on Tuesday, analyst Llelleythan Tan opined that there is "some upside at current price levels" for CDG as an expected earnings recovery would help to underpin a better share price performance moving forward.
With "record-high" taxi and ride-hailing surcharges at present, he continues to see CDG's rail ridership recovering to near pre-pandemic levels by Q1 2023 as more commuters are expected to shift to trains.
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The analyst also noted a "sharp spike in demand" for point-to-point (P2P) trips in tandem with a gradual improvement of CDG's taxi fleet utilisation in Q2 2022, with a current 15 per cent discount on taxi rentals expected to last until end-September this year.
"Even with a structural decline in the number of taxi drivers, we are of the view that the discount on taxi rentals would be reduced and last till end-Q4 2022 or removed entirely from Oct 1 2022 onwards, given the recent fall in petrol prices and pent-up P2P passenger demand," said Tan.
"With daily rentals being almost double that of Grab and Gojek, we lean more towards the position that CDG would reduce its taxi rental rebates rather than removing them entirely, keeping its daily rental rates competitive for taxi drivers," he added.
Shares of CDG were unchanged at S$1.40 as at 10.24 am on Tuesday.
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