ComfortDelGro braces for bumps in the road after extremely speedy rally

The market is too complacent, analysts warn.

ComfortDelGro’s speedy rally might come to an abrupt stop as threats to its business become apparent, a report by Maybank Kim Eng said today.

Maybank Kim Eng analyst Derrick Heng noted that the market is too complacent on three fronts, particularly threats to CDG’s taxi business, the possible failure of a bus asset sale, and the impact of a weakening Australian dollar.

“We expect the growing presence of Uber to pose a structural threat to its taxi business. Regulators in Singapore appear to be adopting a lighttouch and we expect taxi rentals to be under pressure,” Heng said.

Heng also believes that while the market expects a potential windfall from the sale of CDG’s bus assets to the government, this is not yet a done deal and a leaseback is still possible.

“While it is logical for the government to buy its bus assets, it has never announced a decision on this. The government will be cautious not to be seen as giving private entities a large handout, especially with the General Elections looming,” he noted.

The third threat against CDG is the weakening AUD, which has already depreciated by around 7% on average from last year.

“While underlying performance remains stable, we believe that weakness in the AUD could weigh on CDG’s profitability in the year ahead. Australia is the second largest overseas market for the group at 10% of sales and 16% of EBIT,” he warned.