Excerpts from DBS report

Analyst: Andy Sim, CFA

What's new
• Has market priced in Phase 3 re-opening for CD? We think not, given P/B is -2SD below mean

ComfortDelGro
Share price: $1.51 Target:
$1.96
• Data points to people moving more; Phase 3 to see a jump

• Keeping watch on potential P2P industry consolidation and fare review

• Not a smooth ride for CD, but odds of share price appreciation are higher; Reiterate BUY, TP: S$1.96


Investment Thesis
Attractive ride at -2SD historical mean. Trading at 1.2x PB (-2SD of historical mean) as ROE jumps to ~9% (FY21F), ComfortDelgro’s (CD) current price seems unjustified.

Investors should look beyond FY20F. Reiterate BUY.

Consolidation of P2P industry. We are looking at smaller private rental car fleet providers exiting the market, bringing a balance to the point-to-point (P2P) supply-demand dynamics.

Phase 3 re-opening could be another trigger. Tracking mobility data, people are now moving about more. With sustained low infection rates, a Phase 3 re-opening could be a near term catalyst.

Valuation:
400taxisOur TP is raised to S$1.96 as we revise our valuation peg to 1.6x FY21F P/BV, which is -1 S.D. of its historical average, on expectations of ROE jumping to c.9% in FY21F, after a dismal FY20F.

The counter is trading below 1.2x P/BV, or -2 S.D. of its average.


Where we differ:
Consensus earnings for FY20F vary widely. We expect sequential but gradual improvement in 3Q20 and urge investors to look further out towards 2021.

Key Risks to Our View:
Deterioration in the pandemic situation could present downside risks. Heightened and prolonged irrational competition from private hire companies leading to further contraction in taxi fleet, loss of bus contracts, changes in regulations affecting operations.


Full report here. 


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