OCBC raises ComfortDelGro's fair value estimate amid expectations of smoother ride ahead

SINGAPORE (Apr 17): OCBC Investment Research is keeping its “hold” call on ComfortDelGro (CDG), but raising its fair value estimate to $2.63 from $2.38 on the back of improved market sentiment for the public transport operator.

Analyst Low Pei Han notes that the share price of CDG’s 74.5%-owned subsidiary SBS Transit has climbed around 56% year-to-date.

She adds that this has been supported by earnings growth with the contributions from the Seletar and Bukit Merah Bus Packages, which commenced operations from March and November 2018, respectively.

“As a comparison, SBS’s net profit was $80 million versus CDG’s $303 million in FY18, while SBS’s net profit was $47 million versus CDG’s $302m in FY17,” Low says, noting that SBS now accounts for around 20% of CDG’s net profit.

Meanwhile, CDG is also expected to be lifted pending conclusions to the government’s earlier consultation paper on changes to regulations for the point-to-point (P2P) transport sector, which closed nearly two months ago on Feb 21.

“There are expectations that a new regulatory framework for the P2P transport sector will be established, given the current sheer size of the private hire sector. For instance, regulatory scrutiny of the private hire industry may be increased, levelling the playing field for taxi operators,” says Low.

According to data from the Land Transport Authority (LTA), Singapore’s taxi fleet has fallen 10% y-o-y to 20,256 as at February 2019, with CDG commanding a share of around 60%.

In contrast, the number of private hire cars stood at 67,788 as at February 2019, relatively unchanged from a year ago, Low notes.

As at 2.56pm, shares in ComfortDelGro are trading flat at $2.61, implying an estimated price-to-earnings (PE) ratio of 17.7 times and a dividend yield of 4.0% for FY19.