ComfortDelGro (CD SP) - Maybank Kim Eng 2017-05-15: Taxi Weakness Continued, But Positive for Bus and Rail

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COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro (CD SP) - Taxi weakness continued, but positive for bus and rail

Results in line; expect better 2H 

• 1Q17 core earnings, which were in line after excluding a SGD11m special dividend from Cabcharge, fell 3% YoY and met 21% of our FY17E. The decline was due to: 
  1. 12% fall in taxi’s EBIT; and 
  2. 3% decline in public transport’s EBIT due to start-up costs for Downtown Line Stage 3 (DTL 3); and 
  3. reduced advertising profit. 
• We expect earnings to catch up later, from: 
  1. consolidation of Cabcharge’s minority earnings, estimated to be around SGD20m for the full year; 
  2. increase in ridership from DTL 3, expected to begin in 2H17; 
  3. better profitability for bus under the new bus model. 
• We cut our FY17E EPS by 2% to reflect weaker taxi segment, and expect taxi’s EBIT to decline 7% in FY17E, from 2% decline previously. 
• Maintain HOLD with TP lowered 2% to SGD2.64, based on 17x FY17E EPS, a slight premium to the historical average of 15x to reflect a positive change in the bus model.

Structural weakness in taxi is more apparent 

• Management continued to guide for weakness in the taxi segment, especially from more intensified competition. Key weakness indicators include: 
  1. EBIT for this segment declined by 12% YoY in 1Q17; 
  2. the idle rate has risen to around 3%, from 1.5% in 4Q16; 
  3. its taxi fleet has been reduced to 15.8k from around 17k in 4Q16; and 
  4. taxi booking rate fell by 14% YoY. 
• In this challenging environment, lower capex will be committed for fleet renewal.

Positive for bus and rail; TEL potential catalyst 

• The bus segment continued to perform well under the new Bus Contracting Model. However, the additional EBIT has been eroded by: 
  1. the 4.2% fare reduction for rail services in Dec 2016; 
  2. start-up costs for DTL 3; and 
  3. lower advertising revenue, as the government only allows advertisement for two-third of the bus spaces under the new bus contracting model. 
• Tender for the new Thomson East Coast Line (TEL) was submitted in 1Q17 and LTA is expected to take around 3 months to review the tender. This could be a positive catalyst as the project will be profitable quickly, as the successful tenderer will receive a service fee to run the line without the need to bear fare-revenue risk.

Swing Factors

Upside

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

Downside

• Decline 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/ 2017-05-15

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.64 Down 2.680