ComfortDelGro set for further rebound in earnings, dividends

Land transport operator ComfortDelGro’s dividends could improve this year with an expected recovery in earnings and cash, according to RHB and Maybank analysts.

  • ComfortDelGro (SGX: C52) share price was unchanged at S$1.58 a share
  • RHB said the stock’s valuation does not capture the upcoming ROE improvement
  • The land transport conglomerate’s earnings last year were in line with market forecasts
  • Maybank sees room for a 60% dividend payout ratio, while RHB expects the mid-year dividend to return
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Is the stock’s valuation ‘compelling’?

ComfortDelGro Corporation’s full-year net profit slid 77% to S$61.8 million for 2020, while revenue tumbled 17% to S$3.2 billion amid border closures and economic lockdowns.

Maybank’s research team noted that the 2020 headline earnings were largely in line with street estimates. The quarter-on-quarter improvement in the group’s 4Q20 operating profit also met RHB’s expectations, as revenue from the public transport and taxi businesses grew.

Maybank analyst Kareen Chan maintained a ‘buy’ call and S$1.88 target price, as ComfortDelGro offers exposure to domestic transport recovery while trading at a 42% price-to-book discount to its historical mean.

RHB analyst Shekhar Jaiswal said the stock’s current valuation remains ‘compelling’. Its shares are trading at 1.3 times on a price-to-book-value basis, which he believes ‘fails to capture the expected sharp improvement in return on equity in 2021’.

Jaiswal kept his ‘buy’ recommendation with a S$1.90 target. While the share price could remain subdued in the near term, amid potential earnings headwinds from the ongoing lockdowns in the United Kingdom, RHB projected ‘strong profit growth’ in 2021 aided by gradual normalisation of business activities in its key markets.

The stock price was flat at S$1.58 by 10:23 SGT on Tuesday, after 7.1 million shares changed hands. It was one of the most actively traded by value.

Could its dividend rebound to S$0.042?

The first and final dividend per share stood at S$0.0143 for last year, representing a payout ratio of 50% and 0.9% yield. These exceeded Maybank’s expectations of S$0.009 per share.

RHB believes the firm should be able to reinstate its interim dividend payment this year, given the expected growth in earnings and cash balance. ‘We now expect ComfortDelGro to stick with its 50% payout ratio in 2021 (versus an earlier 80% estimate),’ Jaiswal said.

Maybank is more bullish, seeing room for a higher payout ratio as the bottomline recovers and net cash position strengthens further. Chan currently forecasts a 60% payout ratio for 2021, versus a five-year average of 73%. That would imply a dividend per share of S$0.042 for 2021 and 2.7% yield.

What risks does ComfortDelGro face?

A key risk to its operations is if the Covid-19 situation worsens in its main markets, according to Maybank.

ComfortDelGro is also most exposed to environmental risks, as its public transport and taxi arms drive the bulk of the group’s revenue, Maybank added. That said, the firm is on track with its medium-term and long-term environmental goals.

Meanwhile, RHB pointed out that the group will suffer if its taxi fleet size continues to decline and if it faces increased competition in the ride-hailing space, as that will lead to lower daily rental rates for taxis.

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