ComfortDelGro Corp Ltd - Pain everywhere

26 May 2020
  • Revenue and PATMI were below expectations. 1Q20 PATMI fell 49% YoY, dragged down by taxi profits declining 92% YoY. The full impact of circuit breaker and rental rebates to taxi drivers in Singapore will occur in the following quarter.
  • Comfort will be providing a total of S$116mn worth of taxi rental rebates. Rebates started in mid-February and will end in September. The bulk of the rebates will occur in 2Q20 when 100% waiver of rent is given for almost two months.
  • The taxi operations will be loss-making in FY20 due to the rebates. The rental relief from Comfort will help retain taxi drivers longer than competitors. We expect the path to recovery will be gradual. Social distancing behaviour, working from home and the decline in tourist will all weight on passenger volumes. We downgrade to NEUTRAL with a lower target price of S$1.50 (prev: $2.20). Our PATMI for FY20e is slashed by 62%. It excludes the job support scheme to be received from the government.

 

 

The Positive

+ Free cash-flow of S$57.4mn in 1Q20. In 1Q20, Comfort generated free cash-flows* of S$57.4mn (1Q20: +S$0.4mn). Operating cash-flow of $S105.5mn during the quarter was higher than a year ago (1Q19: S$95.6mn). This allowed the company to turn net cash position of S$26.mn against the net debt of S$40mn as at end Dec19.

 

*Operating cash-flow less capital expenditure

 

The Negatives

– Taxi profitability plunged. Taxi operating profit plunged 92% to S$2.4mn. Rental rebates and lockdowns depressed earnings and volumes respectively. Of the S$116mn of rental rebates to Singapore taxi drivers, we believe only S$13.7mn was incurred in 1Q20 (Figure 2).

– Bus operations are not immune. The lower frequency in bus mileage will impact revenues. The service fee paid by the authorities is dependent on mileage travelled. 1Q20 there was less impact on Singapore. Reduction in advertisement revenue was another negative driver for earning.

– Overseas operations perform poorly. Poor weather and a declined in tourism pushed the UK and Ireland operations into losses. China similarly swung into losses due to lock-downs and rental relief to taxi drivers.

 

Outlook

Taxi – Comfort taxi drivers will receive rental relief in stages from 13 February onwards (Figure 1). Taxi drivers will also receive 100% rental waiver from 7 April to 1 June, to coincide with the circuit breaker period. We estimate the rental rebates from Comfort in 2Q20 will be around S$68.9mn (Figure 2). Taxi operations are expected to be loss-making in FY20e.

Public transport – Public bus and rail ridership was down between 70-75% during the circuit breaker period. Lower mileage operated will lead to less service fee to be received from the authorities. However, capacity needs to be close to pre-Covid level because safe distancing measures cannot totally be enforced on public transport. Rail operations will bear the full brunt from the collapse in ridership.

 

Downgrade to NEUTRAL with a lower target price of S$1.50 (prev. S$2.20)

The recovery will be slow. Bus operations can recover faster as revenue depends on capacity, not passenger volumes. However, rail and taxi will suffer for a more prolonged period. The unknown for us will be the number of taxi drivers churning out of or into Comfort. With rental rebates still underway, the taxi fleet for Comfort has been relatively stable.

 

About the author

Paul Chew
Head of Research
Phillip Securities Research Pte Ltd

Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.

He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.

Latest Reports

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you

IMPORTANT INFORMATION

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  

 

Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com