ComfortDelGro: Recovery in Progress, Cheap Valuation

I believe recovery is already in progress but the market valuations remains at historical low.

3Q22 Results

$COMFORTDELGRO CORPORATION LTD(C52.SI)$  recent 3Q22 results shows good improvement with net profit up by 33% YoY to SGD 58.8M while revenue up by 10.1% YoY to SGD 969.5M. The improvements was mainly by Taxis, Vehicle Inspection and Driving Centre on easing restrictions, higher mobility trend, and post-covid reopening.

Mobility trends in Singapore have already begun to normalise and this should be reflected in its operating performance in the future.

According to DBS, ComfortDelGro FY22F net profit could rise 14% YoY and returning to 80%/94% of 2019 levels by 2023F/24F as key segments see increased ridership and demand, but valuations are at still hovering at a record low.

In addition, shift in its Singapore taxi rental model to ride up on improved mobility. With tightened liquidity, ComfortDelGro ride-hailing competitors like $Grab Holdings(GRAB)$  are looking towards a pathway to profitability, which could reduce aggressive pricing discounts.

ComfortDelGro is also tweaking its taxi rental business model with an element of commission sharing which provides more levers for potential revenue upside compared to the previous practice of relying on just fleet expansion and rental rates.

Public Transport Cost Pressures

The turnaround in its main operations partially set back by public transport cost pressures (wages and fuel) and regulatory headwinds. Overseas contribution accounted for 21% of 3Q22 operating profits vs 30-40% typically.

Valuation

Take a look at the current valuation and data below.

I believe the market has yet to price in the recovery with the counter still trading at 1x P/BV, 13.8x PE and a yield of 5.5% for FY23F.

ComfortDelGro Profile

ComfortDelGro is one of the largest land transport companies in the world with a global workforce, a global shareholder base and a global outlook.

ComfortDelGro's businesses include bus, taxi, rail, car rental and leasing, automotive engineering services, inspection and testing services, driving centres, non-emergency patient transport services, insurance broking services and outdoor advertising.

Apart from being the market leader in Singapore, ComfortDelGro has a significant overseas presence. The Group’s operations currently extend from the United Kingdom and Ireland to Australia, New Zealand, Malaysia, as well as across nine cities in China, including Beijing, Shanghai, Guangzhou, Shenyang and Chengdu.