Despite removal from STI, ComfortDelGro to get better share price performance

The analyst said ComfortDelGro will be saved by strong rail recovery.

FTSE Russell may have scrapped transportation firm, ComfortDelGro on the Straits Times Index (STI), but analyst, UOB Kay Hian, said ComfortDelGro’s share price performance will still be improved.

STI administrator, FTSE Russell, recently replaced the transportation company with Philippine-based whisky company, Emperador.

UOB KayHian said it wasn’t a surprise as ComfortDelGro consistently placed at the bottom of the stock market.

There could be “short-term” risks for share price performance but will be offset by the rail ridership and taxi passenger demand that was triggered by the border reopening.

“With the removal of this overhang, we opine that CD’s expected earnings recovery would help underpin better share price performance moving forward,” the analyst said. 

Losses to be mitigated

When the Downtown Line (DTL) transition resulted in cost savings, UOB KayHian sees that ComfortDelGro will face reduced revenue in its bus services.

“As DTL has been operating at a loss, this has resulted in annual cost savings of around $20m, based on our estimates,” said the analyst, in a report.

The DTL moved to become a New Rail Financing Framework Version 2 (NRFF V2) as of January 2022.

But the savings from NRFF V2 and strong rail recovery brought about by the easing of restrictions will help ComfortDelGro mitigate such risks.

“This is also an improvement from July 2022 when rail ridership only formed 79.9% of pre-pandemic levels. With record-high taxi and ride hailing surcharges, we also expect more commuters to shift to trains,” said UOB Kay Hian, commenting on the strong demand for railways.