ComfortDelGro to endure effects of coronavirus outbreak

A potential taxi rental rebate might only shave off about 0.9-3.9% of its 2020 profits.

The effects of the novel coronavirus outbreak on ComfortDelGro is expected to be temporary and manageable, as it has little exposure in China and is likely better informed by its experience from the SARS incident, according to a report by DBS Group Research.

ComfortDelGro’s share price fell 10% vs. STI’s 1%, and the company shared that its Nanjing driving centre has been instructed to suspend operations, and its bus station in Guangzhou saw a 15% YoY decline in traffic during the Chinese New Year period.

According to a report by RHB, there could likely be a negative impact on its Singapore taxi business, given a sharp decline in travel and tourism within Asia. With these, a revival of strong earning growth will have to come from new acquisitions, an improvement in the Singapore taxi business, or a reduction in rail losses.

However, this effect could be manageable for the firm, said DBS analyst Andy Sim, as it does not particularly operate in Wuhan or the Hubei province, and the largest contributor to its China operations, taxi, accounted for only 4% of the group’s operating profits.

In the worst-case scenario, the company may extend taxi rental rebates similar to what it did during the SARS outbreak. Assuming this was set at $10-15 per day for its fleet of 11,200 taxis, this is estimated to only shave off about 0.9-3.9% from its 2020 profits, and is unlikely to be in place for a prolonged period.

This price weakness may also present an opportunity for accumulation. “Granted that it will be tough to indicate if share price has reached a nearterm bottom, particularly given the fluid situation, we believe we could be around it,” Sim said.

Additionally, the upcoming Singapore Budget 2020 may also provide relief similar to the $230m SARS relief package for the service, tourism and transport sectors in 2003. For the transport industry, this involved diesel tax rebate for taxis and deferment of the taxi operator licence fees