Is ComfortDelGro Stock a Buy Now?

June 21, 2022

During the COVID-19 pandemic, Singapore’s local economy was battered by the closure of international borders and locals starting to work from home.

Singapore’s largest taxi operator, ComfortDelGro Corporation Limited (SGX: C52), was one company that was severely affected by restrictions imposed globally to contain the spread of infections.

In its FY2020, revenue was down by 16.9% to S$3.2 billion while net profit fell by 77.1% to S$60.8 million.

Even with the recovery seen in FY2021, revenue remained 9.3% below pre-COVID level in FY2019 while net profit is still half of what it was in FY2019 (see below).

Source: ComfortDelGro’s Annual Report FY2021

However, with Singapore’s reopening, I believe that ComfortDelGro will be one of the companies that can benefit as mobility trends gradually return to normalisation.

Here are five reasons why I think ComfortDelGro is a stock that investors should buy into given the reopening of international travel.

1. Ridership for public transport gradually returns to normal

More than 60% of ComfortDelGro’s revenue is generated from its public transport services while another 25% comes from its taxi business segment.

Meanwhile, in terms of geography, most of  ComfortDelGro’s revenue comes from Singapore (58%), followed by the UK (25%), Australia (10%), China (5%) and others.

Source: ComfortDelGro’s Annual Report FY2021

Given the significance of Singapore and the public transport business segment to ComfortDelGro, Singapore’s reopening of its international borders and gradual return to normalcy will boost its earnings recovery.

ComfortDelGro said that ridership for public transport is slowly improving in Singapore and rail ridership has returned to around 65% to 70% of pre-pandemic levels as at the end of Q1 FY2022.

Aside from Singapore, public bus schedules in Australia and the UK have returned to full service levels.

China is the only country which remains affected but given its negligible contribution to revenue in FY2021, the impact should be minimal.

2. Recovery in earnings

As pointed out earlier, both revenue and net profit of ComfortDelGro stood at around S$3.9 billion and S$265.1 million, respectively, prior to the COVID-19 outbreak.

The return to normal will drive a recovery in earnings. In fact, Q1 FY2022 has seen a continued recovery in earnings for the Group.

ComfortDelGro recorded revenue growth of 3.9% year-on-year (YoY) to S$895.9 million in Q1 FY2022 while net profit increased by 30.4% to S$76.7 million during the same period.

Excluding government relief, the Group’s core operating profit was up by 25.7% to S$64.6 million in Q1 FY2022.

The sustained recovery in earnings over the next 12 months, as Singapore’s public transportation and taxi businesses operations return to normal, will benefit ComfortDelGro.

3. Reduced aggressive competition in ride-hailing competitors

The decline in taxi numbers prior to the COVID-19 pandemic is a concern for long-term investorswho own ComfortDelGro shares.

The company has seen its taxi numbers fall in recent years, from 16,997 in FY2015 to 9,000 in FY2021.

Part of the reason was due to the aggressive competition offered by ride-hailing competitors such as Grab Holdings Limited (NASDAQ: GRAB) and PT GoTo Gojek Tokopedia Tbk (JKSE: GOTO).

However, since both ride-hailing competitors are now publicly-listed companies, they should face closer scrutiny from a bigger pool of investors.

This means that the competition going forward will be healthier as these ride-hailing competitors will also turn towards profitable business models rather than disrupting the market with low fees.

4. Growth plans remain intact despite COVID-19 disruptions

While ComfortDelGro continues to navigate the uncertainties posed by the pandemic, growth plans remain intact for the company.

Here is a summary of some of the expansion that ComfortDelGro has undertaken:

  • Tender win to operate Auckland Rail Network last year marks its entry into the New Zealand market
  • ComfortDelGro’s consortium with its Australian partners has been shortlisted for the Western Sydney Airport rail project
  • Preparing bids for the two new Land Transport Authority’s (LTA) contracts in Singapore
  • ComfortDelGro’s Australia Group wins bid to operate bus services in Darwin

5. Attractive valuation

ComfortDelGro’s share price has yet to recover to pre-COVID levels. This is in line with the earnings that have remained 50% below its FY2019 level.

Prior to the COVID-19 outbreak, ComfortDelGro’s share price was trading at around S$2.50 level but has since fallen to below the S$1.80 level.

At its current level, ComfortDelGro is trading at around 1.1 times its book value with a dividend yield of around 3.0%.

The company has a dividend payout policy of 50%, which ensures a sustainable recurring dividend income for investors who are looking for protection from the inflationary environment.

Source: Bloomberg

ComfortDelGro is worth a second look

While ComfortDelGro was one of the companies that was severely affected by the pandemic, the company is in a good position to tap into the recovery in a gradual shift towards normalisation.

Downside risk remains, as seen by the decline in its taxi fleet, but the company has continued to tap the growth potential in other regions.

A look at the analysts rating shows that 9 out of 11 analysts have a BUY call on ComfortDelGro (see below) with an average target price of S$1.76.

This represents 25% upside for investors who buy into the company now.

Given the upside of the company with Singapore’s reopening and the easing of COVID-19 restrictions globally, I believe investors should take a second look at ComfortDelGro.

Source: Wall Street Journal

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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