Hot stock: ComfortDelGro rallies 4.3% on DTL financing framework review

SHARES of ComfortDelGro surged on Tuesday following last Friday's news of the government's intention to review the financing framework for the Downtown Line (DTL).

After closing S$0.03 or 1.9 per cent higher at S$1.64 on Monday, the transport operator continued its climb from Tuesday's open, adding S$0.07 or 4.3 per cent from the open to hit an intraday high of S$1.71 as at 10.07am with some 15.5 million shares changing hands.

The counter later eased to close at S$1.70, up S$0.06 or 3.7 per cent. According to data from ShareInvestor, no married deals were recorded for the day.

ComfortDelGro owns a 74 per cent stake in DTL operator SBS Transit, which stands to benefit from a revised financing framework for the DTL that is currently on a fixed-fee framework known as New Rail Financing Framework (NRFF) version one.

The North-South, East-West, Circle and North East lines are on a revised NRFF version two framework, which reduces commercial volatility under a risk-sharing model.

The Thomson-East Coast Line is on NRFF version three, with the government collecting all the fare revenue and bearing all revenue risk as well as granting the operator a fee to run the line in the initial period when ridership is still not stable.

Maybank Kim Eng (Maybank KE) said it views NRFF version three as the "most ideal scenario" for ComfortDelGro, although the DTL's financing framework transitioning to NRFF version two would also bode well for the group, considering the rail line's present loss-making position.

"We believe the authority is more likely to revise DTL's framework to NRFF version three as ridership has yet to stabilise and long-term impact of work-from-home measures remains uncertain. In our view, transitioning to NRFF version three would be the best outcome for ComfortDelGro as this would swing its railway business back into the black almost immediately," said the research house in a report on Tuesday.

Assuming the DTL achieves breakeven from its conversion to NRFF version three, Maybank KE thinks this could potentially add four Singapore cents or 49 per cent to its projected FY2021 earnings per share, from 8.7 cents to some 13 cents.

The research house is reiterating its "buy" call on the counter with an unchanged target price of S$1.88.