Yahoo Finance RHB maintains 'buy' on ComfortDelGro amid rising taxi fares.
Analyst Jaiswal maintains a positive outlook, citing overseas public transport earnings, Singapore rail riders and taxi earnings.
As taxi fares in Singapore are set to rise, RHB Bank Singapore has reiterated its “buy” call, with a target price of $1.50 representing a 6% upside with about a 5% FY2024 yield.
On Dec 13, ComfortDelGro C52 (CDG) raised its taxi flag-down fares by 50 cents for its regular taxis, and distance and time-based charges by one cent.
Analyst Shekhar Jaiswal says that these changes are to address taxi drivers' earnings, which have been impacted by higher fuel costs as well as the current and upcoming goods and services tax (GST) hikes.
CDG has also extended its daily peak hours to incentivise more taxis to remain available and meet the rising demand, he notes.
To address the availability of taxis, CDG has announced that it would extend the period during which an evening peak-hour surcharge applies by an hour to start at 5pm instead of 6pm. A peak-hour surcharge from 10am to 1.59pm on weekends, including public holidays has also been introduced.
“CDG currently imposes a peak-period surcharge of 25% of the metered fare, and these changes are done to ensure there are enough taxis on the road to meet rising commuter demand during peak hours,” Jaiswal notes.
As of October, CDG had a fleet of 8,841 Comfort and CityCab taxis, accounting for about 64% of the market, the analyst says.
With the lack of drivers and high certificate of entitlement (COE) prices limiting the expansion of the point-to-point market, CDG should continue to see high demand for its taxi services.
“CDG witnessed 8.1 million app bookings each in the last two quarters (i.e. estimated annualised bookings of 32.4 million). Assuming an average taxi fare of $20 and a commission rate of 5%, the revenue upside would be around $32.4 million, implying an unchanged estimated net margin for 2024, which would increase our 2024 profit by 0.8%,” says Jaiswal.
In addition, CDG says that about 70% of its UK bus contracts have seen cost indexation benefits, with the rest of the contracts expected to see the benefits flowing through in the next two quarters. The UK is also seeing new and renewal contracts priced at higher-than-current margins, as the irrational competition from the post-pandemic period has eased, according to the analyst.
As such, Jaiswal maintains a positive outlook for CDG, as he expects to see improvements in overseas public transport earnings; Singapore rail ridership; and taxi earnings amidst a reduction in taxi rent rebates and the introduction of a new platform fee for bookings on the Zig platform.
As at 10.18am, ComfortDelGro is trading flat at $1.38.
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