Broker's take: More room to grow for ComfortDelGro's payout ratio, says Maybank KE

MAYBANK Kim Eng on Tuesday said it sees room for a higher payout ratio for ComfortDelGro. This comes as the transport operator's bottom line recovers and net cash position continues to strengthen in fiscal 2021.

The research team forecasts a 60 per cent payout ratio for its FY2021 estimate, versus a five-year average of 73 per cent - implying a dividend per share of 4.2 Singapore cents and 2.7 per cent yield.

ComfortDelGro had declared a first and final dividend per share of 1.43 cents for the full year ended Dec 31, 2020 (see amendment note), representing a payout ratio of 50 per cent and 0.9 per cent yield. 

Keeping Tuesday's Singapore Budget announcement in view, UOB Kay Hian (UOBKH) said separately that a targeted Budget package may extend some relief to transport operators as ridership levels continue to be affected by Covid-19 measures, including work-from-home arrangements.

ComfortDelGro's valuations remain attractive for UOBKH and RHB. On a price-to-book value basis, RHB noted that ComfortDelGro trades at 1.3 times, which fails to capture the expected sharp improvement in return on equity in 2021.

DBS said ComfortDelGro's current price seems "unjustifiably low". The stock is trading at a price-to-book ratio of 1.2 times and -1.5 standard deviation of its historical mean, the research team said. 

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As a whole, analysts foresee earnings improvement in FY2021 on the back of gradual normalisation of business activities in Singapore which should support ridership recovery. Earnings should also improve from the decline in rental waivers to taxi drivers.

RHB analyst Shekhar Jaiswal estimates more than 200 per cent profit growth for ComfortDelGro's fiscal 2021. Earnings recovery in overseas markets will likely be visible in the second half of the year. A full recovery in earnings to pre-Covid-19 levels could take more than two years, he noted.

Maybank KE analyst Kareen Chan said Covid-19 has made the inflexion point for recovery difficult to predict. That said, there is significant value as the research team thinks the worst is over. ComfortDelGro offers a domestic transport recovery story while trading at a 42 per cent price-to-book discount to its historical mean, she noted.

Citi analyst Patrick Yau said: "While continued UK lockdowns are dampeners to recovery expectations if they persist, we like ComfortDelGro's cost optimisation plans/execution in taxis and the approximate S$40 million to 50 million in relief for FY2021."

The transport operator's FY2020 earnings were largely in line with analysts' expectations, particularly Maybank KE, RHB and UOBKH.

However, ComfortDelGro's results were slightly below CGS-CIMB's estimates. The group's FY2020 net profit came in at S$61.8 million, compared with the research team's forecast of S$67 million.

Maybank KE, RHB, UOBKH and DBS maintain their "buy" calls on the stock, with unchanged target prices of S$1.88, S$1.90, S$1.78 and S$1.99 respectively. CGS-CIMB reiterates "add" on ComfortDelGro, with an unchanged target price of S$1.70. Citi's target price, meanwhile, stands at S$1.80.

Shares of mainboard-listed ComfortDelGro closed at S$1.57 on Tuesday on a cum-dividend basis, down 0.6 per cent or S$0.01.

Amendment note: An earlier version of this story incorrectly stated ComfortDelGro's dividend for FY2020 as S$1.43. It should have been 1.43 cents.