ComfortDelGro - UOB Kay Hian 2016-02-11: 2015 Results Preview ~ Expect A Firm Performance On Solid Results From SBS

COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro Corporation (CD SP) 2015 Results Preview: Expect A Firm Performance On Solid Results From SBS

SBS reported solid 2015 results, with net profit rising 17% yoy, buoyed by firm topline growth from the bus and rail segments.
We expect no major surprises from CD’s 2015 full-year results to be released this Friday.

SBS Transit (NOT RATED) recently released its 2015 full-year results. Net profit grew 17% yoy, helped by a 29bp rise in operating margin to 2.46%.
Despite a 9.7% yoy rise in staff costs, total cost grew 7.4% yoy as key cost components such as fuel and electricity (-5.5% yoy) and repairs & maintenance (+5.1% yoy) grew slower than turnover growth.

Staff cost grew 9.7% yoy in 2015 and exceeded turnover growth as the group built up its staff strength ahead of the opening of Downtown Line 2 (DTL 2) on 27 Dec 15.
The average daily ridership at DTL1 rose 23.5% yoy to 76,000 passenger trips.
We expect ridership to enjoy a further boost after the opening of DTL2 due to the improved network and connectivity.

SBS’s net gearing fell to 98% as at Dec 15 (2014: 156%) due mainly to the repayment of loans under the Bus Service Enhancement Programme (BSEP).
Despite its relatively high gearing, interest cover remained high at 4.3x.

We estimate the book value of SBS’s buses as at Dec 15 at S$810m.
Assuming the disposal of the buses at book value and the repayment of its total debt and net trade payables (amounting to S$488.8m), we estimate SBS could pay out a net cash balance of S$321m as special dividend.
Assuming a 50% payout, this works out to 5.6 S cents per CD share.
No timing guidance has been provided and we estimate this to be in 2H16 or even stretching into 1H17.

No change to our earnings forecasts ahead of the release of CD’s 2015 results this Friday (12 February) after market close. On our estimates, the group remains on track to register a 3-year EPS CAGR of 11%. This and its strong cash generation capabilities look attractive in view of the market uncertainties.
Key risks include weaker ridership or lower-than-expected average fare increase at its bus and rail divisions. Non-accretive acquisitions could also be another risk.

CD’s outlook remains resilient as we expect a 3-year EPS CAGR of 11%.
More importantly, CD is well-positioned for growth due to its diversified earnings as well as strong balance sheet. Our DCF-based target price of S$3.30 implies 2.3x 2016F P/B, which is above its long-term mean of 2.05x since 2007.
We think the P/B premium is deserved as our 2016 forecast ROE of 14.4% is higher than its long-term average ROE of 12.5%.
In addition, the shift in Singapore’s bus operations to a low-capex model will also result in stronger operating cash flows going forward.

Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2016-02-11

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