ComfortDelGro (CD SP) - Maybank Kim Eng 2017-02-13: Unexciting outlook, but still a decent yield play

ComfortDelGro (CD SP) - Maybank Kim Eng 2017-02-13: Unexciting outlook, but still a decent yield play COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro (CD SP) - Unexciting outlook, but still a decent yield play


Results in line; expect bus segment to hold the fort 

  • FY16 earnings and a higher payout ratio of 70% were in line with our expectation; core earnings grew 5% YoY. 
  • Operating profit for the bus and rail segment was flat, while taxi grew 2% YoY. The growth in taxi was attributable to small fleet renewal and more cashless transactions. 
  • The outlook has turned more bearish for the taxi segment amid a challenging operating environment, where management guided for a decline in taxi revenue for the first time. The only bright spots are the Singapore and Australia bus segments, with the transition into more profitable bus contracting model and the potential to win more contracts. 
  • We raised our FY17-18E EPS by 2-5% to account for full consolidation of 49% stake in Cabcharge in 2Q17. 
  • Maintain HOLD and raise TP (2%) to SGD2.68 based on 17x FY17E EPS, a slight premium to the historical average of 15x to reflect a positive change in bus model.


First time lower guidance for taxi biz 

  • For the first time, management has guided for a lower revenue expectation for the taxi segment. The weakness is attributable to: 
    1. market maturity; 
    2. competition; and 
    3. a slower economy. 
  • Fleet renewal will be slowed down by stretching the lifespan of the existing vehicles to eight years. 
  • Comfort has also rolled out a new revenue sharing model, which charges its taxi drivers lower rental in exchange for completing at least 25 booking jobs each week.


No major M&A currently and capex will be capped 

  • There is no opportunity for major M&A currently and targeted capex for FY17E is unlikely to exceed SGD388m, as recorded in FY16. The hiring of workers and start-up costs for DTL phase 3 was incurred partially in FY16, which is estimated to be around SGD30m. 
  • For FY17E, the cost could increase further from a full-year impact.


Unexciting growth but more room to raise dividend 

  • Given the lack of growth opportunities and major capex, there is room for a higher dividend payout. 
  • Backed by its robust balance sheet with net cash of more than SGD400m and strong FCF of c.SGD300m pa., it could pay out up to 100% of its net profit. This implies a DPS of SGD15.7cts for FY17E or 6.3% yield.


Swing Factors


Upside

  • Better-than-expected bus profitability.
  • Successful bids for new rail lines in Singapore.
  • Value-enhancing acquisitions of overseas business.

Downside

  • Declines in taxi utilisation or rental rates.
  • Overpaying for acquisitions.
  • Higher labour and energy costs.




Derrick Heng CFA Maybank Kim Eng | John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-02-13
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.680 Up 2.630



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