Is ComfortDelGro Gearing Up for a Recovery?

2021-02-23     thesmartinvestor
Is ComfortDelGro Gearing Up for a Recovery?

Last year has been a period unlike any other as COVID-19 swept across the globe.

Industries that once stood tall were brought to their knees by the economic damage wreaked by the coronavirus, as governments around the world imposed lockdowns and border closures to curb its spread.

As movement was curtailed and people stayed indoors to telecommute and study, sectors such as aviation and land transportation bore the brunt of these measures.

For Singapore Airlines Limited (SGX: C6L), last month’s operating statistics showed a 97% year on year fall in passengers carried.

Land transport giant ComfortDelGro Corporation Limited (SGX: C52), or CDG, recently reported a dismal set of full-year earnings.

There’s good news on the horizon, though.

In one of Israel’s biggest studies to date on the effects of Pfizer’s (NYSE: PFE) COVID-19 vaccine, the country’s healthcare provider reported a 94% drop in symptomatic infections for those who had taken both doses.

And in the UK, new data released by Scotland showed that the two vaccines authorised for use — by Pfizer and AstraZeneca (LON: AZN), helped to dramatically reduce risk for hospitalisation after just one jab.

In light of these findings, can CDG gear up for a possible recovery later this year?

Vaccine hopes

Positive news is starting to trickle in slowly with regards to mass inoculations.

Many countries, though, are still grappling with bottlenecks in logistics and distribution of the various COVID-19 vaccines.

Once these kinks are resolved, more people in the high-risk group will get vaccinated.

A turning point will come in our fight against the coronavirus where the rate of infections should fall dramatically.

Only then will countries consider easing the draconian restrictions on travel and tourism that are in place now.

This process may take anywhere from a year to several years, depending on the efficacy of the current crop of vaccines and the rate of distribution for each country.

It does offer CDG investors some hope that the problem can be resolved soon.

Risks still abound, though.

Various new strains of the virus, such as the latest in India, have recently surfaced that may be more deadly or contagious than the original.

Should a resurgence in cases occur, governments will be left with no choice but to continue with lockdowns.

A new normal

Even if the virus is successfully tamed, investors could be looking at a new normal post-pandemic.

This crisis has forced many businesses to digitalise and also pushed numerous companies to offer telecommuting options for their staff.

Video conferencing tools are in place for corporate meetings and employees have now discovered and enjoyed the convenience and flexibility associated with working from home.

Ridership on public transport such as MRT trains, taxis and buses may never return to pre-pandemic levels.

SBS Transit Ltd (SGX: S61), CDG’s 74.4% subsidiary, provides some insights on how the division fared last year.

Average daily ridership on the Downtown and North-East MRT lines in 2020 fell by 46% and 41% year on year, respectively.

Fares increased by a low teens level year on year but it was not sufficient to offset the fall in passenger volume.

The Land Transport Authority said earlier this month that bus and train ridership fell to an 11-year low.

MRT and LRT rides fell by 41% while bus ridership fell by 30%.

These trends may persist over the medium-term and prevent CDG from enjoying a full recovery.

Continued government assistance

CDG’s Taxi division incurred its first-ever operating loss due to a smaller fleet size and reduced ridership.

This trend looks set to continue in 2021 but luckily, the recently-announced Budget is setting aside S$133 million for a Driver Relief Fund to ease financial pressure off drivers whose income has plummeted.

Eligible drivers will receive S$600 per month from January to March and S$450 per month from April to June.

This measure will help to ease some financial pressure off CDG’s Taxi division for this year.

Get Smart: A faint glimmer of hope

Chairman Lim Jit Poh remarked that the pandemic had given management time to reflect and ponder over “existential issues”.

As a result, the group did an in-depth analysis of the business and will focus more on improving its technology and digitalisation.

Newer and cleaner technologies were also mentioned, in line with the current ESG trends.

As CDG looks for new avenues for growth and strives to remain relevant in this brave new world, investors can sense a faint glimmer of hope for the group.

Although recovery may not come swiftly, the good news is that the group is now better positioned for challenges and can prepare itself for long-term resilience.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

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