Regardless of the near-term pressures, Lee thinks CDG’s strong free cash flow (FCF) yield of 8% is still supportive of a 4-5% dividend yield for its investors over FY17-19E, which is among the highest among Deutsche’s Singapore industrial coverage.
In spite of to the recent introduction of dynamic pricing along with Uber and Grab’s initiatives to support drivers obtaining the private-hire car driver vocational license (PDVL), Lee also expresses the view that private-hire driver supply will shrink upon commencement of the PDVL regulation on July 1 this year to result in higher fares.
This in turn will shift commuter demand back to taxis, opines the analyst.
“The PDVL restricts drivers who are non-Singaporeans, under-2-year driver licence holders, [and/or drivers who] do not pass the 10-hour course from providing a private hire car service. Hence, we factor a 0.5% decline in the CD taxi fleet with a 2% idle rate from FY17E,” says Lee.
“Despite FY17E earnings contraction of 3.5%, FY18/19E would see growth of 5%/1.5%, mainly driven by Downtown Line (DTL) volume ramp-up. We believe a larger proportion of FY17E earnings would be back-end loaded, as DTL phase 3 starts operations in 2H17,” he adds.
Catalysts that would further support CDG’s share price include winning the tender for the Thomson East Coast Line (TEL), which was held in 1Q17, which would prove earnings accretive for CDG from 2019 onwards as the government would pay the operator a fee to operate the line.
Another positive contributing factor would be inorganic growth, which CDG’s management continues to guide for.
As at 3.40pm, shares of CDG are down by 4 cents at $2.62.
