SINGAPORE (May 16): Analysts are mostly neutral on ComfortDelGro Corporation (CDG) after the group announced at 6.2% y-o-y increase in its 1Q19 earnings to $70.4 million, due to higher revenue, driven by strong contributions from recent acquisitions made in 2017 and 2018.
Revenue grew by 7.8% y-o-y to $947.3 million, with the topline growth coming mainly from the Public Transport Services, Automotive Engineering Services and Driving Centre businesses, but this was offset in part by lower income from the Taxi and Bus Station businesses.
In all, operating profit for 1Q grew 12.2% or $11.7 million on-year to $107.4 million, which the group says would have been $1.7 million higher if not for negative foreign currency impacts resulting from the weaker AUD, GBP and RMB.
See: ComfortDelGro posts 6.2% higher 1Q earnings of $70.4 mil on topline boost from acquisitions
RHB Group Research recommends investors to “take profit” on CDG and consider “buying” if it share price drops to $2.40. The research house has a target price on $2.65 on the stock.
In a Wednesday report, analyst Shekhar Jaiswal says, “We remain optimistic that ComfortDelGro’s earnings growth will recover this year, aided by contributions from new acquisitions and growth in its public transportation business. However, management turning cautious on its taxi business outlook is a cause for concern.”
The analyst also believes that the group’s existing business could still see margin pressure from higher competition and unfavourable foreign exchange. Hence, the group should continue acquiring new businesses that offer higher margins to sustain its margin expansion.
“While such a scenario is plausible, we believe CD will prefer to first focus on consolidating its newly-acquired businesses,” says Jaiswal.
Meanwhile, DBS Group Research has downgraded its call to “hold” from “buy” with a higher target price of $2.59 from $2.57 previously. The research house recommends to enter at a lower price of about $2.40.
In a Wednesday report, analyst Andy Sim says, “We have shifted gears to a neutral view given the good run in share price YTD, however one of our key thesis of taxi recovery is not playing out as expected.”
The analyst likes the counter for its defensive traits and consistent performance, but sees limited upside at this juncture. He predicts earnings growth of 4%/3% in FY19/20.
Maybank Kim Eng is maintaining its “hold” call on CDG with a target price of $2.45.
In a Wednesday report, analyst Luis Hilado says, “Looking ahead, growth should continue to be driven by overseas contributions.”
The analyst positively notes that the group’s 1Q19 EBIT margin was higher at 11.3% compared to 10.9% last year due to contribution from Australia public transport investments, contrasting with the group’s management guidance of margin pressure in FY19. The resilience and potential upside for margins are tied to the degree of ride hailing competition.
“That said, we continue to adopt management’s conservative margin outlook of margin contraction and thus maintain forecasts,” says Hilado.
OCBC Investment Research also has maintained its “hold” recommendation on CDG with an increased fair value estimate of $2.69 from $2.63 previously.
Looking ahead, the group expects revenue from the public transport services segment to increase, supported by Singapore and Australia; UK to remain the same.
Meanwhile, taxi revenue is expected to decrease, along with car rental & leasing. And revenue for the other segments are expected to remain stable.
CDG is also participating in bus tenders in Australia, such as in Adelaide and Perth, and the results for South Australia should be around September while Perth should be earlier.
In a Wednesday report, analyst Low Pei Han says, “We expect acquisitions to continue, though management commented that the ability to find the right people to run the acquired businesses is also a factor during considerations.”
As at 10.40am, shares in CDG are trading 1.19% lower at $2.49 or 2.2 times FY19 book with a dividend yield of 4.1%.
