At home, SBS Transit, the Singapore public transport subsidiary of CDG, has continued to register m-o-m improvements in rail ridership since February.
The analyst adds that the average daily ridership this August was around 55% higher than the numbers seen in Aug 2021 and Aug 2020, while the year-to-date (ytd) average daily rail ridership is only 23% below 2019 levels.
“This improvement in rail ridership, which we expect to sustain during the coming months, along with the transition of the Downtown Line (DTL) to New Rail Financing Framework Version 2 [NRFF(V2)], should help offset some reduction in its bus service fees,” says Jaiswal, noting that the decline in CDG’s taxi fleet seems to have “taken pause” with a m-o-m increase of 27 taxis in August.
He adds that CDG has gradually increased its market leadership position in the taxi industry in Singapore, which is already seeing a “strong increase” in demand.
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Jaiswal’s TP of $1.75 represents a 36% upside and around a 4% yield. CDG’s share price has fallen around 8% since the stock’s exclusion from the Straits Times Index (STI) on Sept 19 — its lowest level in 10 years — which makes for a “compelling” valuation, according to the analyst.
He says that CDG is trading at 13x FY2023 P/E compared to its 10-year average forward P/E of around 16x. “Our discounted cash flow (DCF)-derived $1.75 TP implies 17.7x FY2023 P/E, which — although higher than its historical average — seems reasonable, amidst the earnings recovery. Our TP includes a 12% ESG premium over the $1.56 fair value,” explains Jaiswal.
He admits that there are some concerns on the outlook of CDG’s UK business, which he believes is “twofold”. The first is about the potential impact from a move in GBP-SGD pricing, while the other is on the likelihood of a sharp slowdown in UK’s economic activity translating into lower earnings contribution from the UK to the group.
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Jaiswal says: “Given that CDG’s revenues and costs in the UK are both denominated in GBP, except for a nominal translation impact, we do not foresee any material earnings impact from the sharp GBP movement witnessed recently.”
“Although the UK used to account for around 10% of CD’s operating profit in 2019, its contribution has dropped to around 3% in 1HFY2022-ended June. Therefore, unless the UK business starts reporting material losses, we do not expect a material earnings impact from a slowdown in the UK’s economic activity on CDG’s earnings in the near term,” he adds.
Key risks to Jaiswal’s outlook include a continuing decline in taxi fleet size, increased competition from ride-hailing players leading to lower daily rental rates for taxis, a sharper-than-estimated decline in margins for existing businesses and the loss of existing contracts for the public transport business.
As at 2.23pm, shares in ComfortDelGro were trading 1 cent or 0.78% down at $1.28, representing a dividend yield of 3.87%; shares in SBS Transit were trading 3 cents ot 1.11% down at $2.67, representing a dividend yield of 2.98%.
