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ComfortDelgro – BT

7 December 2011
.

Profit boost for ComfortDelGro unlikely: analysts

Fare hikes not likely to see immediate cab rental revision, they say

COMFORTDELGRO will not benefit from its latest taxi fare revision in terms of earnings, say analysts. But some reckon that, further down the road, the new fare structure will give the land transport operator more leeway to adjust cab rentals.

Some analysts yesterday kept their earnings expectations for ComfortDelGro unchanged, even though taxi passengers are widely expected to pay more overall from the mix of reductions and increases in the new fare structure that takes effect from Monday.

‘This is only a fare revision which will affect taxi passengers’ travelling costs and hirers’ income. We don’t expect an immediate change to hire-out rates and lease-out rates so we keep our earnings estimates for now,’ DBS Group Research said in a report yesterday. It maintained a ‘buy’ call on the stock with a target price of $1.95.

Kim Eng Research also sees ‘no direct impact on the operator’s profitability’. Its check with ComfortDelGro’s management ‘suggests that there is currently no intention to raise its cab rental charges in the near term’, it said in a note yesterday.

Some analysts, however, believe that the increase in cabbies’ earnings will give ComfortDelGro more leeway later on to raise average rental rates.

‘Based on our assumption that a taxi driver can earn about $10 more a day following the fare revision, and assuming (ComfortDelGro) increases its rental fees by 20 per cent of the drivers’ increased profits, (ComfortDelGro) would be able to increase its average rental rates by about 2 per cent, which will translate to a 4 per cent increase in its FY2013 (profit after tax and minority interests),’ Joshua Low of DMG & Partners Research said in a report yesterday.

‘Though (ComfortDelGro) has not commented on increasing its taxi rental rates, we see the possibility of this happening once commuters become more accustomed to the new fare structure.’

Mr Low expects taxi passengers’ fare to increase by 10 per cent. Likewise, AmFraser Research, which did its own sums, said in a note that distance-based fares will be 5.5 per cent higher and ‘coupled with higher flagdown rates, overall cost to commuters will be at least 10 per cent more’.

ComfortDelGro is raising the flagdown rate by 20 cents for most of its taxi fleet. The peak period surcharge, while lower in percentage terms, has been extended to cover all of nightfall, from 6pm to midnight, seven days a week and on public holidays. Rival SMRT Taxis is expected to follow suit.

The last fare revision was in 2007 and was also initiated by ComfortDelGro. Its competitors then followed suit.

ComfortDelGro shares closed trading yesterday up two cents at $1.44.

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