ComfortDelGro is one of the largest land transport operators around but its share price has been a " massive laggard" , excluded from the recent " super-charged" market rally that has seen blue chip index stocks and small penny counters surging.

 

" While traditionally seen as a low-beta stock, we reckon this could change soon," suggests Maybank Securities analyst Eric Ong in his July 25 note, where he has kept his " buy" call on the counter.

 

He points out that CDG continues to deliver " respectable" earnings growth and a decent yield of almost 6%.

 

In addition, CDG is one of the " prime candidates" of the $5 billion EQDP fund meant to boost the valuation and liquidity of non-STI stocks.

 

Market factors aside, there are a couple of developments specific to CDG.

 

On July 16, it launched training and capabilities development initiatives to upskill existing drivers, so as to help them prepare for the future of mobility that includes autonomous vehicles (AVs) to deal with persistent driver shortages.

 

Ong notes that CDG had already launched its first two-year robotaxi pilot programme in Guangzhou, in partnership with Pony.ai, an autonomous driving technology company.

 

" This will enable it to develop and refine capabilities for AV technology operations and fleet management, with the goal of future large-scale deployment in China and other international markets," says Ong.

 

Also, CDG plans to introduce new cancellation and waiting fee policies in Singapore from July 31.

 

To help drivers and passengers get familiar with the changes, there will be a " waiver period" and customers will only be charged cancellation fees from Sept 1 and the waiting fee from Oct 15.

 

" That said, we think the move should not make CD less competitive in the market as this is generally in line with prevailing industry practices and other ride-hailing companies such as Grab also have similar charges," says Ong.

 

For the upcoming 1HFY2025 earnings to be reported on Aug 13, Ong is projecting a core patmi of $58 million, up 10% y-o-y, and up 20% q-o-q, driven by overseas contributions from the recent acquisition of CMAC, A2B and Addison Lee.

 

The company is expected to report better EBIT margin improvement for UK bus contract renewals, as well as the commencement of the UK Metroline Manchester contract from Jan 2025. \

 

Ong is expecting an interim dividend per share of 3.9 cents, equivalent to a payout ratio of 80%.

 

To take into account a more optimal capital structure, Ong has raised his DCF-based target price to $1.70 from $1.64.