ComfortDelGro taxi's profit margin shrinks to 2% in 2020: Maybank Kim Eng

The taxi business is said to be bearing the brunt of the pandemic.

ComfortDelGro’s taxi earnings before interest and taxes (EBIT) margin is expected to drop sharply to 2% in 2020, from 15.6% in 2019, according to a Maybank Kim Eng report.

ComfortDelGro recently announced that it is expecting H1 losses due to impairment in its taxi division. This is said to be attributable to the significant impact of the pandemic on its operating regions, as well as the possibility of impairment of investments in certain local and overseas subsidiaries.

Maybank Kim Eng notes that the impairment could come from its taxi business, which is bearing the brunt of the pandemic with operation weakness already factored into forecasts. Structural growth is intact, whilst CDG remains a key beneficiary from rising ridership as Singapore emerges from the lockdown.

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However, the report notes that Singapore’s Phase 2 reopening may offset some of the downside from impairment charges as there are no further substantial rental rebates expected.

Maybank Kim Eng believes investors should buy on price weakness as CDG continues to focus on expanding its stable, non-volatile bus contracting model, which accounted for 63% of its 2019 revenue.

Meanwhile, the report adds that CDG will be a key beneficiary as economic activities resume in Singapore. Even with an impairment charge of $26.2m, dividend per share (DPS) of $0.043 is still well supported by free cash flow (FCF).

The group took an earlier impairment charge of $27.3m or 0.5% of its total assets in 2019 for taxis in Singapore and China, given competition from private-hire players. A similar charge off now would imply an impairment of $26.2m, a 17% downside to the expected earnings per share (EPS) in 2020.

CDG had already previously warned that its taxi division could face losses since March due to the substantial amount of taxi rental reliefs, amounting to $117m, given to taxi drivers amidst the pandemic.