Rental rebates will hit ComfortDelGro's FY2020 earnings

The taxi rebates will cost CDG about $9m.

ComfortDelGro’s earnings are expected to decline on the back of the rental rebates it will be providing to its COVID-19 hit taxi segment, analysts report.

DBS Group Research has trimmed down their FY2020F earnings forecast by 6.2%, pencilling in lower rental assumptions for CDG’s taxi operations. Meanwhile, CGS-CIMB expects taxi normalised earnings before interest and taxes (EBIT) to decline by 12% for FY2020F.

“We expect further earnings decline in FY20F as taxi operations are likely to be hit by the coronavirus outbreak, with CDG giving out rental rebates,” CGS-CIMB analyst Ong Khang Chuen said.

Also read: ComfortDelGro profits fell 12.6% to $265.1m in 2019

CDG has announced that it will co-fund the $20 daily rental rebate per taxi for the next three months to support taxi hirers. This amounts to about $1,800 per taxi for the duration, of which CDG will bear half the cost, according to DBS. This translates to $9m for its whole fleet of about 10,000 taxis in Singapore.

Earnings would also be continually impacted by its shrinking fleet size. As of November 2019, CDG’s fleet size has shrunk to 11,200 from having more than 16,800 taxis three years before. Taxi operations contribute about 25% of the group’s operating profit, with CDG’s Singapore taxis accounting for about one-fifth of its revenue and operating profits, according to DBS.

“We trimmed our forecasts by 6% to 5%, which are now at the lower end of consensus. We believe the impact from COVID-19 should be temporary, but with the cut in dividends and muted growth outlook, we believe it could be tough for CDG’s share price to perform in the near term,” noted DBS Group Research analyst Andy Sim.

Also read: ComfortDelGro to endure effects of coronavirus outbreak

RHB analyst Shekhar Jaiswal also noted the group’s shrinking fleet size and rising idle rate. “Although the competitive intensity from ride-hailing players has dropped, CDG saw a decline in taxi fleet size and rise in idle rate. YoY, its fleet size has declined by 14% and the idle rate is now slightly lower than 5%. The idle rate could get worse as taxi drivers earnings are impacted by COVID-19,” he said.

Jaiswal added that margins for its public transport business is expected to remain weak in the near term, dragged down by weak EBIT from CDG’s overseas public transport services, particularly from its UK segment.