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ComfortDelGro share price hits 2-year low amid soft analyst estimates

Analysts across the board have lowered their earnings and share price predictions for the transport group, citing ‘significant impact’ from COVID-19.

Singapore’s largest taxi operator ComfortDelGro Corporation Limited's share price has fallen nearly 9% since it reported its full-year results for the 2019 financial year.

Shareholder dividend cut by 14%

The group, which has land transport operations in Singapore, the UK, Australia, China, Vietnam, and Malaysia, saw its FY2019 net profit attributable to shareholders drop by 12.6% or S$38.2 million to S$265.1 million.

The lower profit was attributed to higher group operating costs of 3.7% to S$3.5 billion, due in part to the expansion in business but also a S$27.3 million impairment of its taxi business.

Final tax exempt one-tier dividend for FY2019 was also cut by 14% to S$0.529 per share, versus S$0.615 in the year before.

Prior to the release of its results on 14 February, ComfortDelGro stocks were trading at S$2.18 per share. As of 11.55am on 24 February, share price stands at S$1.99 apiece.

‘Public transport earnings collapsed’

A deeper probe into the results showed that much of the weaker earnings can be traced back to the public transport segment’s weaker-than-expected performance.

As Philip Securities Research’s Paul Chew noted, ‘the biggest disappointment was the 44% in earnings at the public transport division (bus and rail)’ in the last fiscal quarter.

While profit margins ‘were expected to narrow’ due to higher rail repairs and maintenance costs, Chew said the decline ‘was more pronounced than expected’.

Public transport recorded a revenue of S$744.3 million in Q4 FY2019, flat against Q4 FY2018. Operating profit for the segment was down year-on-year due to a licence charge for Singapore railway network, Downtown Line.

Furthermore, the line grew its average daily ridership by a ‘tepid 6% year-on-year to 477,000 in 2019’, according to UOB Kay Hian researcher Lucas Teng.

He added that business is ‘still tough for Downtown Line’, with higher maintenance costs associated with the ongoing North East Line and Light Rail Transit fleet’s ‘mid-life refurbishment’ and staff salaries still to come.

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Company’s outlook for FY2020; COVID-19 thoughts

The company provided the following guidance for the 2020 financial year in a press release:

‘The COVID-19 outbreak broke out in Wuhan, China in December 2019 and quickly spread internationally despite efforts to contain it. How the outbreak will turn out is currently unclear and a prolonged outbreak is anticipated. COVID-19 and measures to fight it will result in the economic slowdown of affected countries.

‘Our taxi, public transport and transport related businesses are witnessing lower ridership and volumes as we face significant operational challenges. Notwithstanding the current uncertainties, the group maintains its long-term focus on the mobility strategy and continues to transform and build capabilities.’

Lower share price and earnings predictions from analysts

Following that guidance, analysts from DBS Vickers, OCBC Investment, Phillip Securities, and UOB Kay Hian have lowered their share price and earnings predictions for the transport group.

OCBC’s research team lowered their share price targets (fair value estimates) to S$2.70 per share from S$2.91 previously, citing a ‘significant impact’ from the coronavirus epidemic to the taxi and rail business.

Teng from UOB cut his earnings estimates by 5.5% for FY2020/2021, on the back of two COVID-19 related factors: a three-month taxi hirer rental rebate programme to help cushion the fall in passenger volume during this period that will costs about S$9 million in all; as well as lower ridership for Downtown Line.

He also lowered his share price target to S$2.15 per share from S$2.27 previously. He estimated entry price to be S$1.95 and a ‘hold’ rating with a long-term forward price-to-earnings (P/E) ratio of 16.7. ComfortDelGro shares currently have a P/E ratio of 16.27.

Phillip Securities has cut its FY20 earnings estimates by 16% on account of expected weaker traffic, higher taxi rental rebates, and disruption to the company’s China operations. It maintained its ‘accumulate’ recommendation with a lower price target of S$2.20 per share from S$2.56.

Finally, DBS Vickers’ Andy Sim also lowered his forecast for the company’s FY2020 and FY2021 earnings by 6.2% and 4.8% respectively.

He added that dividends per share (DPS) ‘could trend lower in FY20F before reverting up in FY21F’. For now, his team projects this financial year’s DPS to move down to S$0.96 per share, versus S$0.107 per share previously. They have downgraded their stock rating to ‘hold’ on a lower share price prediction of S$2.26 (from S$2.45 previously).

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