Deutsche Bank says there is more upside to ComfortDelGro and SMRT
Analyst: Wei-Shi Wu
ComfortDelGro: Target price is $2.85. Chart: Bloomberg.Opportunity to buy CD and SMRT has not closed. These stocks should continue to re-rate, as the market digests the implications of the bus contracting model. We now push out our cost-plus timing to end 2016 and incorporate an asset-light scenario in our forecasts - this drives our CD/SMRT TPs to S$2.85/S$1.90 respectively.
The successful sale of existing assets could mean further upside. We would, however, highlight that the rate of incremental policy announcements could slow from now. We remain significantly differentiated from the Street on our SMRT call/forecasts.
Should I still Buy CD/SMRT at current levels?
Our new assumptions, with lower long-term capex, result in further uplift in target prices for both CD and SMRT.
Furthermore, we have (conservatively) not factored in the potential cash proceeds from the sale of existing bus assets to the government. As highlighted previously, we estimate the NBV of bus assets for CD is S$900m while that for SMRT is S$200-300m.
For SMRT, there is potential further upside from the early migration of rail to an asset-light model, with the NBV of related assets on this company’s balance sheet estimated at up to S$1bn.
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