"In spite of the recent weakness in share price, we continue to like ComfortDelGro, underpinned by strong earnings growth and a decent 2025 dividend yield of 6.1%," write Tan and Mo, who are keeping their "buy" call and $1.76 target price.
In their April 15 note, Tan and Mo note that around half of ComfortDelGro’s annual revenue and 60% of its annual operating profit are derived from domestic operations, implying little impact on both its top and bottom lines.
In addition, close to 85-90% of its operating costs are attributed to costs such as staff and insurance costs which are unaffected by the tariffs.
"We also understand that ComfortDelGro sources its buses from Europe and China, with no exposure to the US.
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"Lastly, given the defensive characteristics and demand inelasticity of the transport sector, we expect ComfortDelGro's earnings to remain largely stable even in the event of an economic recession," they add.
For this current FY2025, they expect full-year contributions from recent acquisitions the likes of A2B, CMAC, Addison Lee, and also new public bus contracts commencing in
Greater Manchester and Victoria, coupled with higher margins from the ongoing UK bus contract renewals to boost its revenue and earnings.
Also, with the Singdollar eased for the second time in a row on April 14, overseas contributions will likely get a boost with Singdollar as the reporting currency, suggest Tan and Mo.
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In Singapore, the analysts believe that with improving domestic rail ridership coupled with higher rail fares from last December, rail revenue will enjoy a lift.
Meanwhile bus revenues are set to drop in 2025 due to the loss of the Jurong West bus contract and softer margins from the recently renewed Seletar bus package which started in March.
ComfortDelGro faces stiff competition in the taxi and private hire business though, with new entrants Geolah and Trans-Cab intensifying competition.
"This would lead to lower completed bookings and drag down ComfortDelGro's overall commission on completed jobs," the analysts say.
Taxi rentals in China are seen to stay "subdued" from an economic slowdown but full-year contributions from the A2B and the Addison Lee acquisitions in Australia and UK respectively are expected to support the taxi segment’s upward growth momentum.
For now, Tan and Mo have maintained their earnings estimates, as they project the company to report 1QFY2025 PATMI of $58 million, up 46% y-o-y, on the back of revenue of $1.2 billion, up 20% y-o-y.
Their target price of $1.76 is pegged to the same 16x FY2025 earnings, which is the company's five-year average long-term PE.
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Tan and Mo also like this counter for its "decent" dividend yield of 6.1% for 2025, and they believe that there is potential upside at current price levels, underpinned by strong earnings growth from the taxi segment and better margins from the UK bus business.
"With the recent fall in share price performance, we opine that this represents an attractive entry price for investors. ComfortDelGro remains one of our conviction picks for 1HFY2025," say Tan and Mo.
ComfortDelGro shares changed hands at $1.42, up 0.71% as at 9.24 am.
