ComfortDelgro - Results give comfort
- 4Q16/ FY16 results within expectations.
- Payout ratio increases more than expected to 70%.
- Group CEO stepping down as part of succession; handing over to internal veteran.
- Maintain BUY, TP revised to S$2.94.
Maintain BUY, TP adjusted to S$2.94.
- Despite operating headwinds and skepticism, ComfortDelgro (CD)’s management continues to deliver consistent and steady growth.
- We maintain our BUY recommendation with a revised TP of S$2.94.
- CD is currently trading at 16.2x/15.7x FY17F/18F PE, below its historical 5-year average. While market skepticism could linger for a while, we believe the continued delivery of steady operating performance by the group will vindicate our view.
FY16 profit rose 5% despite challenges; payout jumps to 70%.
- CD’s results were within expectations, delivering net profit of S$317m (+5% y-o-y) and S$71.2m in FY16 and 4Q16 respectively.
- FY16 revenue dipped by 1.3% to S$4.06bn from a year ago, largely as a result of an unfavourable FX translation impact.
- The growth in revenue was contributed by SBSTransit (+S$76.2m), Singapore taxi business (+S$59.2m) and Metroline (S$10.5m), offset by engineering (-S$40.6m), ComfortDelGro Bus (-S$20.2m) and others (-S$12.7m).
- Despite higher costs, mainly staff (+3.9%; +114.8m), EBIT margins expanded by 40bps to 11.4% in FY16, from 11% benefitting from lower oil prices.
Taxi segment is challenging but not out.
- Management indicated that the outlook for taxis is challenging, and it will be more conservative in fleet renewal programme. It will be/ has implemented more varied and flexible rental structures to retain drivers, as well as implementing initiatives to stretch its taxis lifespan nearer to the statutory limit of 8 years.
- While there could be near term headwinds, we believe CD stands out as the stronger party among the taxi operators to weather this. The eventual implementation of regulations on the private hire car industry will level the playing field to some extent for the taxi industry, and could provide some relief.
- Our target price is revised to S$2.94, on the back of 3-4% reduction in our earnings forecasts coupled with a higher share base.
- Our TP is 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, heighten competition and currency swings may impact our forecast