Brokers' take: UOBKH, Maybank KE, RHB maintain 'buy' on ComfortDelGro

UOB Kay Hian, Maybank Kim Eng and RHB have maintained "buy" on transport operator ComfortDelGro, with UOBKH raising its target price to S$1.95, from S$1.85 previously. Maybank KE and RHB left target prices unchanged at S$1.88 and S$2.10 respectively.

In reports issued on Thursday and Friday, the brokerages cited ComfortDelGro's higher-than-expected net profit of S$56.2 million in the first quarter of 2021 and positive operating leverage for the ratings.

UOBKH analyst Lucas Teng noted that on a quarter-on-quarter (qoq) basis, revenue dipped slightly, falling by 3 per cent, but operating margin improved.

For public transport, Q1 revenue was resilient while operating profits were robust, aided by government relief and improvement in charter services in Australia and the UK, he said.

"While domestic travel could continue to improve the overseas private buses operations, management expects a more sizeable boost in the UK if international travel returns," Mr Teng added.

Analyst Kareen Chan at Maybank KE noted that on a qoq basis, all divisions were stable or improving except for public transport, which saw a 5 per cent fall to S$665.6 million in Q1 revenue due to a decrease in UK public transport services as a result of nationwide lockdowns.

The taxi business in particular enjoyed rental rebates in Singapore, something which continued to expand the division's earnings before interest and taxes (Ebit) margin.

Mr Teng added that the group has a large number of hybrid vehicles even among its downsized fleet, something which improved operating margins to 11.7 per cent, excluding grants.

The passenger land transport company also benefited from its announcement that it is exploring options to unlock value in Australia, with options such as a partial sale of assets or an initial public offering on the table.

It is one of the largest privately owned bus operators in Australia, Mr Teng noted, where the group has invested S$1.7 billion to date, making it ComfortDelGro's single largest overseas investment destination.

RHB's Shekhar Jaiswal said: "While the timing is uncertain, we believe value unlocking through the monetisation of its Australia business will offer an additional re-rating potential for CD's share price."

Both RHB and Maybank KE acknowledged that ComfortDelGro's management does not rule out resuming interim dividends.

Mr Jaiswal has not changed earnings estimates for now, citing the continued risk of Covid-19 restrictions extension against the backdrop of expected strong profit growth in 2021 and 2022 due to the gradual normalisation of business activities over the next 12 months, supported by an improvement in public transport ridership and the stabilisation of the taxi business.

RHB estimates that a full recovery in earnings to pre-Covid-19 levels could take more than three years.

Shares of ComfortDelGro closed down 3.07 per cent or S$0.05 at S$1.58 on Friday.