PLAY OF THE WEEK
ComfortDelGro's wheels of fortune
Analysts upbeat over its prospects as share price hits 7-year high
Published on May 17, 2014 1:36 AM
ComfortDelGro's large taxi fleet here enables it to consistently report industry-high earnings, say Maybank Kim Eng analyst Derrick Heng, who has a buy call with a $2.40 price target. -- ST FILE PHOTO
By Alvin Foo Economics Correspondent
TRANSPORT stocks shone the brightest this week despite the holiday-shortened trading sessions, and none sparkled more so than ComfortDelGro.
Its shares continue to set fresh seven-year peaks of late, crossing levels not seen since just before the global financial crisis.
The counter closed at $2.28 yesterday, bringing its total gains to 11.8 per cent for the week.
Two key factors account for the transport operator's recent resurgence - upbeat first-quarter earnings released on Monday and rising hopes of positive changes in the public transport policy.
Traders are not following the "sell in May and go away" market adage with regard to ComfortDelGro, said a market observer.
The stock shot up eight cents alone on Monday before rising another nine cents on Wednesday after the Vesak Day break, then charged up six cents on Thursday before capping its sterling display with a one-cent gain yesterday.
Investors also like ComfortGelGro for its defensive nature, which means it is not as volatile during times of market turbulence.
DBS Vickers analyst Andy Sim called the stock a "consistent performer", noting that the group had delivered 12 consecutive quarters of year-on-year growth in its profit, and also showed a broad-based revenue increase.
"While its Singapore bus performance continues to be in the red arising from a difficult operating environment, we believe its operating losses have bottomed out, with recent increases in fares and higher ridership," said Mr Sim, who has a buy call with a $2.30 price target.
Maybank Kim Eng analyst Derrick Heng, who has a buy call with a $2.40 price target, identified three major factors working in its favour:
Its large taxi fleet here enables it to consistently report industry-high earnings.
Its diversified geographical and business exposure offers investors stable and sustainable investment returns.
The full opening of the Downtown Line over the next three years will see SBS Transit, which is part of the ComfortDelGro Group, gain rail market share and become a major operator.
"We believe the impending announcement by the regulators on transition details for its rail and bus business model in Singapore is a key event to watch," Mr Heng added.
Although both ComfortDelGro and SMRT Corp shares have surged in recent weeks, brokers continue to favour the former over the latter.
DMG analyst Edison Chen, who has a buy rating with a $2.48 price target, noted: "As the incoming changes are likely for bus operations rather than rail, we continue to prefer ComfortDelGro over SMRT Corp, given the former's large exposure to the bus business."
Analysts say one key factor which gives ComfortDelGro the edge over SMRT is its exposure to overseas businesses.
ComfortDelGro operates in seven countries including Australia, China and Britain, and has a global network of 46,100 vehicles comprising buses, taxis, trains and rental vehicles. It is active in 12 cities in China.
OCBC Investment Research analyst Andy Wong noted that ComfortDelGro's overseas operations continued their robust growth, "conjuring up a 13.2 per cent and 10 per cent year-on-year growth in revenue and operating profit".
Mr Wong, who has a buy rating with a $2.30 price target, added that besides the Australia bus business which is expected to register a decline in revenue, the management indicated that its remaining business segments are expected to either maintain or increase their revenue.
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