To The Moon

Forgotten ex blue chip stock that could be bullish

If you live in or have been to Singapore, you surely would have heard of this company called $COMFORTDELGRO CORPORATION LTD(C52.SI)$  (CDG) and most likely had either flagged or booked a cab from them, or took other forms of public transport (eg. bus or train) provided by its subsidiaries. CDG is one of the largest global land transport operators with leading operations in Singapore, Australia, and the UK. The company is transforming itself to stay competitive in the point-to-point (P2P) market in Singapore with the introduction of its ride-hailing app, Zig. It has also embarked on multiple initiatives to turn its business segments green, such as provision of EV charging and greening its buses and taxi fleet, potentially paving the way for inclusion in ESG indices.

CDG has a platform fee commission fee model for Singapore Taxi & Private Hire segment to drive future growth. It has introduced booking commissions on its re-launched ride-hailing platform app, Zig, since May 2022, in order to stem declining taxi rental income in Singapore. Since 1 July 2023, there is a S$0.70 platform fee for using the Zig app, which is expected to deliver S$15m to S$18m annualized top-line growth and S$12m to S$15m annualized bottom-line contribution.

Given taxi fleet attrition over the years and an aging driver demography, investors are concerned about CDG's prospect to deliver top-line growth and profitability recovery. Fleet attrition seems to be tapering off based on recent data. In addition, the newly introduced commission model will make up for loss of revenue from a smaller fleet size. There is likely to be a significant top-line and profitability growth headroom from booking commissions given the current low commission rate of 5% vs. 20% for Grab.

Furthermore, CDG has been consistently giving dividends every single year since it went public in 2003 with a dividend yield that easily beats the inflation rate as well as the CPF OA interest rate (with the exception of the past 2 years where inflation shot through the roof). Its average dividend yield over the past 5 years is approximately 3.56% based on its last traded price of S$1.29.

Most analysts have pegged a BUY on this stock with TPs ranging from S$1.35 to S$1.65, so it probably would be bullish. CDG announced its dividends which will be paid on Sep-23 at S2.9 cents per share, so the share price should ideally drop to S$1.26 on 21-Aug-23 which is the ex-date. Although the US market saw a small uptick last Friday, it was generally trending down for the past week. Hence, we may probably see CDG dropping more than the dividend payout rate to around S$1.24-S$1.25 at the lowest when the market re-opens on Monday. This could be a good price to buy in.

That said, one should also consider other possible risks that could depress the share price. Such as taxi fleet attrition outpacing gains in the booking commission leading to lower-than-expected taxi segment earnings, or persistent inflation in UK leading to further losses and other currency exchange risks.

Always DYODD before making any investment decisions.