| • While ComfortDelGro taxis are a common sight in Singapore, a wide range of ComfortDelGro-owned types of vehicles move commuters in 7 countries such as Australia, China and the UK. • Formed from a merger of Comfort Group and DelGro Corporation just over 20 years ago, ComfortDelGro is today one of the largest land transportation groups in the world. • Its current market cap is nearly S$3 billion based on a stock price of $1.37. • DBS Research, in a new report, strongly makes the case that it can go higher. "Reiterate BUY with higher TP of S$1.80 on back of positive engines firing," it says. It has the most positive view among local covering analysts on the upside, as the table below shows.
Read more below... |
|||||||||||||||||||||||||||||||||||
Excerpts from DBS report
| Three reasons for a share price re-rate |
|
Why do we believe the stock has more leg room to run?
We reiterate our positive counter view on three key reasons, with continued earnings recovery and earnings upgrade by market consensus underpinning a further re-rate.
|
|||||
| 1. Multiple levers in a growing Singapore P2P market |
We reiterate our prior view that the market’s view on the group’s taxi fleet as a profitability trend could be missing the picture.
The shift towards commission sharing provides multiple levers for its taxi business to enjoy upsides, namely from fare increases, a higher number of rides, and higher proportion of ride hailing vs. street hailing.
Recently, we also saw the government announcing measures to level the playing field between taxis and private hires:
(i) Extending the statutory lifespan of taxis from eight-10 years, and
(ii) inspection frequency for taxis under three years old to be reduced from biannually to annually.
Beyond 2024, the company has been working on new features for its Zig app, amongst which is an auction mechanism.
We believe this feature could be similar to InDrive, where passengers are able to quote their fare and nearby drivers could accept, decline, or counter.
This would ensure more transparency and fairness in terms of fares vs. an algorithm-driven black box, promoting healthy growth for the industry.
| 2. Worst is mostly over in the public transport segment |
The group’s public transport segment should see continued improvement in operating profit in FY24F, driven by a turnaround in its UK business, and higher fares in Singapore rail, which mitigates lower contribution from buses and concession fee payable.
| 3. Strategic bolt-on acquisitions to drive international growth |
With the elevated interest rate environment, the company has identified attractive opportunities on the market.
Given its solid balance sheet, it is well-positioned to opportunistically acquire with growth intentions.
Management has conveyed that its acquisition criteria are
(i) reasonable valuation,
(ii) being earnings accretive, and
(iii) within its domain and geographical expertise.
We forecast the recent two acquisitions to contribute +3.1% pro-rata to FY24F earnings and +5.4% to FY25F earnings.
Management has signalled that it remains on the lookout for further acquisitions at ~S$100-200m ticket size.
It has also stated its willingness to go into a net debt position if required.
We believe this is a great sign that the company is actively managing capital by sourcing for attractive deals to drive continued growth of the company.
|
Maintain BUY with higher TP of $1.80. |
