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Mon, September 21, 2020 – 1:47 PM
CGS-CIMB has started hedging on SBS Transit with an “additional” call and a price target of S $ 3.40, saying it is “time to get on the stock.”
The market has not discounted the bus and train operator’s recovery scenario and potential catalysts, analysts Ong Khang Chuen and Darren Ong wrote in a note dated Friday.
At the time, its stock was trading at 11.7 times the price / earnings ratio for calendar year 2021, or a standard deviation of -0.5 below its five-year historical average.
As of 1:17 p.m. on Monday, SBS shares, 74.4 percent owned by trucking giant ComfortDelGro, rose 0.06 Singapore dollars or 2.2 percent to trade at 2.85 Singapore dollars. .
Analysts added that they are the first to initiate coverage over the counter and prefer SBS to its parent company ComfortDelGro Corp.
CGS-CIMB believes that, from an operational point of view, the worst is over for SBS and expects public transport users in Singapore to return to around 90% of pre-Covid levels by fiscal year 21. This could boost SBS’s recovery in net income, which analysts believe could increase by 35 percent during the year.
Since the country’s “circuit breaker” was lifted in June this year, passenger numbers have steadily improved, rising to 50 percent from pre-Covid levels in July, followed by 55 percent in August. Singaporeans are also gradually resuming their social activities.
“With new Covid-19 cases in the local community currently at low levels, we see room for further relaxation of safe distancing measures, which could stimulate passenger numbers to rebound,” analysts said.
They also see SBS as offering long-term structural growth as it benefits from Singapore’s public policy, which favors public transport over private vehicle ownership.
The company is a market leader in the public bus industry with a 61 percent market share for bus routes in 2019. This generates defensive earnings and stable cash flow under the bus contracting model, CGS-CIMB noted. .
SBS also operates three of the eight existing rail lines in the Republic at the end of June.
Compared to ComfortDelGro, SBS, being a pure Singapore public transport game, offers direct exposure to potential catalysts such as profits from bus package tenders for example for the Bulim and Sembawang-Yishun bus packages, as well rail financing policy reform, analysts said.
With strong free cash flow generation following the implementation of the bus contracting model in 2016, SBS has become a net cash position at the end of the first half of 2020.
CGS-CIMB sees an advantage in the company’s dividend payment rate, which was 50 percent in fiscal 2019, after earnings normalization, as ComfortDelGro had a dividend payment rate of 80 percent. in fiscal year 2019.
Additionally, as the top recipient of government aid, SBS could see better revenue protection from pandemic-related social distancing measures than ComfortDelGro in fiscal 2020, in the view of CGS-CIMB.
Meanwhile, the brokerage also upgraded ComfortDelGro to “add” from “hold” and raised the share price target to S $ 1.70 from S $ 1.40.
In another note dated Friday, CGS-CIMB said the counter was trading at 14 times the price-earnings ratio for calendar year 2021, or 0.6 standard deviation below its historical average, which the research team believes is you have yet to consider recovery. script.
Shares of ComfortDelGro were flat at S $ 1.48 as of 1:18 PM on Monday.
CGS-CIMB said it has gotten more positive at ComfortDelGro, also thanks to further relaxation of safe distancing measures, which could help passenger numbers rebound.
Analysts Ong Khang Chuen and Cezzane See expect ComfortDelGro’s net earnings to rebound, up 104% in fiscal year 21.
“We also see the likelihood that the government could loosen work-from-home arrangements in the coming months, increasing the mobility of Singaporeans,” they added.
The group’s taxi segment could turn negative again in the fourth quarter of 2020 with the continued moderation of taxi discounts, in the opinion of CGS-CIMB.
ComfortDelGro previously offered a 40 percent discount on taxi rentals from July 16 to August 15, before reducing it to 30 percent from August 16 to September 15. And from September 16 to October 31, all of your taxi drivers will receive a 25 percent rent. resignation.
CGS-CIMB’s expectation that the taxi segment will return to black is based on the assumption that ComfortDelGro will not provide additional relief other than its committed amount to the Special Relief Fund (SRF). The group has pledged to at least match the S $ 10 per day SRF that the government is extending to taxi drivers through March 2021.
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