ComfortDelGro started at 'hold' by Maybank with $2.45 target price; says acquisitions are key to re-rating

SINGAPORE (Mar 4): Maybank Kim Eng is starting coverage on ComfortDelGro (CDG) at “hold” with a target price of $2.45.

This comes on expectations the group’s transport focus and global expansion, which will provide a decent shelter amid private taxi-hailing competition, has been priced into valuations of 17 times 2019E-20E P/E.

In an initiation report on Sunday, analyst Luis Hilado identifies the UK and Australia as markets which would be in line with CDG’s management plans to invest in companies that permit majority control overseas, preferably with rate structures like those under Singapore’s bus-contracting model (BCM) which would allow for immediate earnings accretion.

He estimates the management’s acquisition allowance of up to $1 billion will translate to a gearing of just 24% versus current net cash.

“With or without such acquisitions, we believe CDG can continue to support 75% dividend payouts and generate defensible yields. In the event there are no major acquisitions, we would not rule out the possibility of special cash dividends in the medium-term,” says Hilado.

While the analyst thinks competition from the group’s unlisted rivals Grab and Go-Jek is currently “not yet as fierce”, he says each 50bp reduction in CDG’s taxi EBIT margins could hurt Maybank’s 2019E core profit projections and target price by 1%.

The research house is already assuming a –5% CAGR for taxi EBIT over 2018-21E.

“Share support should come from continued forecast payouts of 75% for prospective 4.3%-4.5% yields. Irrational taxi competition remains a risk to our outlook while additional contributions from acquisitions could provide upside,” he notes.

As at 11.06am, shares in CDG are trading flat at $2.43 or 2 times FY19E book value.