Broker's take: DBS maintains 'buy' on ComfortDelGro amid extended support for industry

DBS Group Research has maintained its "buy" recommendation on transport operator ComfortDelGro with a target price of S$1.96, amid recent announcements in the sector, including extended support for cabbies and private hire drivers.

For one, the Land Transport Authority (LTA) on Tuesday announced the extension of the Special Relief Fund (SRF) amounting to S$112 million for the point-to-point (P2P) industry. Of this amount, S$106 million will go towards providing rental reliefs for active taxi and private hire drivers till March 2021.

This translates to rental relief of about S$10/day per vehicle, as per the original relief announced earlier in February this year, DBS analyst Andy Sim wrote in a research note on Wednesday.

With the resumption of some activities in Phase Two, demand for taxi and private hire cars has increased, though ridership is still around 70 per cent of pre-Covid-19 levels, LTA said. The transport authority also indicated that taxi operators have pledged to continue providing matching rental rebates worth S$29 million to their hirers. For instance, ComfortDelGro is extending its 25 per cent rental waiver for hirers from Sept 16 to Oct 31.

"We estimate that on average, the waiver could amount to about S$30/day, of which S$10 is from the government's SRF. This is a progressive step down from the 30 per cent/40 per cent/50 per cent rental waiver extended in the past few months post the 'circuit-breaker' period," Mr Sim said.

DBS noted that the extension of the rental waiver from ComfortDelGro is "not totally surprising", given the gradual recovery in ridership. The research team views the extension of the SRF as a "welcome relief" to support the industry and ease the burden on transport operators.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

"In fact, the gradual step down in rental waiver by ComfortDelGro shows ridership improvement and is in accordance with our thesis and observation," DBS said.

Separately, LTA has also announced that new applicants for the Private Hire Car Driver Vocational Licence must be Singapore citizens who are at least 30 years old, with a minimum of one year's driving experience. This aligns with the requirements for taxi drivers.

According to DBS, the alignment of the eligibility criteria was "a long time coming", with the research team expecting the development last year. This will help limit potential new drivers which could cause further demand-supply distortion, especially in the current period of lower demand, DBS said.

It added that the occurrence of the Covid-19 pandemic and its impact could catalyse a consolidation of the P2P industry. With private rental car fleet in Singapore ballooning to over 70,000 vehicles, along with a current fleet of 16,000 taxis, this would cause the weaker players to exit the industry, DBS said.

Overall, the research team believes that ComfortDelGro's valuations are attractive at 1.2 times price to book value, which is -2 standard deviations of the counter's historical mean. DBS is also of the view that the market has not priced in Phase Three recovery and sees higher odds of share price appreciation over the next six to 12 months.

ComfortDelGro shares were trading at S$1.53 as at the midday break on Wednesday, up S$0.04 or 2.7 per cent.