Yahoo Finance ComfortDelGro's expansion into China sees RHB raise TP to $1.35
Analyst Shekhar Jaiswal maintains his “buy” call on CDG as it expands into taxi and vehicle inspection and green energy in China.
RHB Bank analyst Shekhar Jaiswal has maintained his “buy” recommendation on ComfortDelGro C52 (CDG) as it expands its footprint in China, with an increased target price of $1.35 from $1.20 previously.
CDG announced its plans to introduce a new platform fee for taxi and private-hire bookings from July 1. As such, Jaiswal has raised his FY2023 ending December 31 to FY2025 earnings by 2% to 3% to account for “slightly higher” taxi revenue from the platform fee as well as lower taxi rental rebates.
He continues to expect CDG earnings to gradually improve in 2HFY2023 amidst benefits from the annual indexation of its overseas bus contracts. Meanwhile, although not the analyst’s base case expectation, a near-term overhang remains from the risk of losing CDG’s Bukit Merah and Jurong West bus packages.
Jaiswal also cites CDG’s expansion into the green energy as well as taxi and vehicle inspection businesses in China as signs of growth for the company.
After signing a memorandum of understanding (MOU) in April, CDG recently announced that it had entered into a strategic partnership with Guangzhou Public Transport Group, the largest public transport and road transport enterprise in South China, to develop and promote transport-related green energy businesses
The partnership will include investments in the construction of automotive electric charging and swapping stations, as well as ancillary solar photovoltaic and energy storage systems to support the charging and swapping business. Their initial joint project will be to deliver 60 chargers with 3,600 kilowatts (kw) of capacity to cater to the needs of municipal buses and cars in Guangzhou.
Jaiswal also notes that on June 25, CDG signed another MOU with Chengdu Hexintong Vehicle Inspection Company to cooperate on a vehicle inspection centre in Chengdu, which has the capacity to conduct inspections for up to 80,000 vehicles a year. Significantly, the centre will be only one of three centres in Chengdu that can conduct inspections for all types of vehicles, he adds.
His positive outlook for CDG is based on an improvement in public transport earnings in its overseas operations during 2HFY2023 amidst indexation of higher operating costs in the UK and an improvement in its rail ridership in Singapore.
This would be further boosted by a possibility of increasing commission rates for taxi bookings — Jaiswal notes that CDG charges only 5% compared to the 20% levied by industry peers — and the eventual reduction of incentives offered to taxi drivers in China during 1QFY2023.
On the other hand, key downside risks for CDG include losing its Bukit Merah and Jurong West bus packages and higher-than-estimated operating costs.
His target price of $1.35 is derived from a discounted cash flow (DCF) based methodology, and includes an ESG premium of since CDG’s ESG score is four notches above RHB’s country median score for Singapore.
As at 2.58pm, shares in CDG were trading 3 cents or 2.5% down at $1.17.
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ComfortDelGro’s new platform fee doesn’t see analysts increase their TPs
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