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Jovi Ho Published on Thu, Jul 16, 2020 / 1:57 PM GMT+8 / Updated 6 hours ago

SINGAPORE (Jul 16): Transport operator ComfortDelGro is expecting “very weak” results for 1H2020, owing to a sharp drop in ridership during the circuit breaker period.

ComfortDelGro is also offering massive rebates to its fleet of more than 13,000 taxis in Singapore.

On that, DBS Group Research is maintaining its “buy” call with an unchanged 12-month target price of $1.68.

“[We expect ComfortDelGro’s] 1H2020 results to be in dire straits, slipping into a net loss position… given the operational impact from Covid-19, coupled with impairment on its investments,” notes DBS Group Research analyst Andy Sim in a July 15 report.

The report comes on the back of a rebate extension by ComfortDelGro for its taxi hirers from Jul 16 to Aug 15. A 40% taxi rental rebate now replaces the 50% taxi rental rebate hirers have enjoyed from Jun 2 to Jul 15.

This is on top of a daily $10 rebate provided under the Government Special Relief Fund, announced earlier in February, to defray rental costs borne by hirers and relief drivers.

“This is largely in line with our earlier views that rental rebates are likely to taper as the reopening gains pace and normality reverts. We have already assumed in our earnings estimates that rental rebates will last till September,” notes Sim.

Sim estimates that the company will spend approximately $120 million on rebates, “including the full rental waivers for the months of April and May, and rebates prior and after.”

ComfortDelGro is expected to see a fall in EBITDA to $694 million in FY2020F from $869 million in FY2019.

With the poor showing, Sim notes that ComfortDelGro is unlikely to pay an interim dividend. “We do expect a final dividend to be paid, but this is likely to be based on its 50% payout ratio under its dividend policy.”

That said, Sim maintains DBS’ view that “the worst is over”, and ComfortDelGro is headed for a gradual recovery.

“The share price has retraced towards the price when we upgraded the stock to ‘buy’, and the recent weakness is a buying opportunity. In the immediate term, the market may be concerned with the upcoming interim results. We believe its current valuation of 1.2x P/B at -2SD of its historical average should have priced in the negatives and provides support,” he adds.

Shares in ComfortDelGro are trading flat at $1.48.

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