Compiled by LynetteTan
COMFORTDELGRO | NEUTRAL
SEPT 19 CLOSE: $2.45
TARGET PRICE: $2.55
RHB Research Institute, Sept 19
While contribution from acquisitions and organic growth in ComfortDelGro's (CD's) public transport business should drive earnings, we remain cautious in the near term amid weakening metrics for its taxi business, and the expected increase in operating costs for the rail business.
A sustainable, roughly 4 per cent dividend yield should provide support to share price. Trading at 17.1 times 2020 forecast price-to-earnings (5-year average: 15 times), the stock looks fairly priced.
Based on Land Transport Authority (LTA) data, CD's taxi fleet has declined by 9.4 per cent during the first seven months of 2019 to 11,200. This, along with loss of drivers to ride-hailing players, have pushed the idle rate for the company's Singapore taxi fleet to about 4 per cent from 2.5 per cent.
Management guided that the replacement of older Hyundai Sonata taxis with hybrid cars, which has helped in offsetting some weakness from declining fleet size, is also being delayed due to a supply shortage.
We expect competitive pressure in the taxi business to persist, given the increase in private car rental fleets in Singapore. CD could forgo some earnings before interest and tax (Ebit) margin in its taxi business (17.8 per cent Ebit margin in Q2 2019) by offering higher incentives to retain drivers. It also expects to end the year with a slightly lower fleet size. The taxi business accounted for 35 per cent of operating profit in 2018.
SINGAPORE REITS | POSITIVE
Maybank Kim Eng, Sept 18
We see potential distribution per unit (DPU) growth levers arising in the coming quarters as the Monetary Authority of Singapore seeks feedback on its proposal to increase the leverage limits for S-Reits, which should help support valuations.
S-Reits have been acquiring assets since 2015, especially overseas. Contributions from their overseas investments have risen steadily from 27 per cent in 2014 to 60 per cent of total investments in 1H 2019. Overseas assets comprise 5-84 per cent of assets under management and are expected to grow.
Yet, they maintain strong balance sheets. The sector's 35 per cent average leverage as at end-June 2019 remains below the 45 per cent regulatory limit.
S-Reits have extended their debt maturities in recent years, while maintaining their fixed-debt ratios (now just above 81.0 per cent on average) due to lower interest rates over the past year. Further interest rate cuts could support DPU upside.
A wider compression in yields across office, retail and hospitality assets have spurred capital-recycling efforts in Singapore but industrial S-Reits have pushed faster overseas for growth, as supply-led fundamentals are positive but demand recovery remains soft. We see a positive-carry for assets in Europe and the US, and hence, opportunities for further DPU accretive deals.
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