ComfortDelGro - DBS Research 2016-11-14: Growth despite translation headwinds

ComfortDelGro - DBS Vickers 2016-11-14: Growth despite translation headwinds COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - Growth despite translation headwinds

  • 3Q16 results in line excluding larger than expected forex translation impact.
  • Expect better growth in 4Q on recent strength of GBP, AUD against SGD, and bus contract model.
  • Recent correction puts valuation at below 5-year average; reiterate BUY, S$3.09 TP.



Maintain BUY, TP lowered slightly to S$3.09. 

  • The recent share price weakness further reinforces our recommendation on the counter despite the market’s perceived challenges for the group.
  • We reiterate our BUY recommendation on ComfortDelgro (CD) as valuations of 16.6x/ 15.3x FY16F/ 17F PE are below its historical 5-year average. With lower capex requirements, we believe there is potential for a higher dividend payout.


3Q16 results in line excluding larger-than-expected FX translation. 

  • CD’s 3Q16 net profit grew 2.5% y-o-y to S$87.3m, even though revenue slipped by 3.1% to S$1.02bn. This was slightly below our expectations of c.6% growth, due to the larger than expected translational effect. 
  • The group’s EBIT margins improved by 22bps to 12.5% in 3Q16 (3Q15: 12.3%) arising largely from lower energy and fuel costs (-24% y-o-y), and materials and consumables (-27%).


4Q16 should show stronger growth vis-à-vis 3Q16. 

  • While 3Q16 recorded only 2.5% net profit growth, 9M16 earnings increased 5.2% y-o-y to S$246m. We expect 4Q16 to register stronger growth on the back of the weakening SGD against AUD and GBP in recent days. That said, we trimmed our forecasts by 2%/ 4%/ 5% for FY16F/ 17F/ 18F to factor in a larger than expected fare decrease of 4% and 2% in Singapore for 2017/18 (vs our earlier expectations of 1%), coupled with marginally higher cost assumptions. 
  • Despite the weak global outlook, we expect CD to post DPS growth with its lower capex requirements.


Valuation

  • Our target price is adjusted to S$3.09, based on average of discounted cash flow (DCF) and price-earnings ratio (PE) valuation methods.


Key Risks to Our View

  • Loss of bus contracts, changes in regulations on operations, and currency swings may impact our forecast




Andy SIM CFA DBS Vickers | http://www.dbsvickers.com/ 2016-11-14
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 3.09 Down 3.170




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