ComfortDelGro (CD SP) - Maybank Kim Eng 2017-11-13: Results In Line; Uber Tie-up May Be Finalised Soon

ComfortDelGro (CD SP) - Maybank Kim Eng 2017-11-13: Results In Line; Uber Tie-up May Be Finalised Soon COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro (CD SP) - Results In Line; Uber Tie-up May Be Finalised Soon


Results on track; upbeat on potential Uber tie-up 

  • ComfortDelGro 9M17 core earnings were in line, at 77% of ours and consensus FY17E.
  • Earnings fell 8% YoY due to a 21% decline in taxi EBIT, but the bus and rail EBIT grew 3%. Taxi weakness was in line, but the rail turnaround could be delayed slightly due to upcoming fare cut; we trimmed FY18-19E EPS by 1%. 
  • Uber tie-up could be finalised before end-Nov 2017, benefits highlighted are:
    1. offset taxi weakness;
    2. partner with deeper pockets; and
    3. access to better technology. 
  • BUY with unchanged DCF-based TP of SGD2.40, (16x FY18E EPS, equal to the LT mean). 
  • FY17-19E dividend yields of > 5% are the highest since 2005 and are sustainable given ex-taxi FCF yield of 7.8% for FY18E.


Taxi weakness continued; few initiatives are in place 

  • Taxi EBIT decline of 21% YoY in 3Q17 continued to deepen, from -17% and -13% in the past two quarters due to increased competition from the private-hire vehicles. However, drivers’ attrition due to aggressive promotions by Grab in 3Q17 was much lower than the 2,000-3,000 reported by the media. The actual number was only in the low-hundreds.
  • Although taxi bookings continued to decline by around 20% YoY, the number improved QoQ due to the flat fare scheme introduced in 2Q17. A flexible rental scheme with lower fixed rental has also helped.


Rail segment healthy but minor derail from fare cuts 

  • The new Downtown Line 3 has shown healthy progress since its opening in Oct 2017. Latest average daily ridership has reached 430k (vs 258k in 3Q17) and is growing healthily. 
  • Although this is not too far from the 500k breakeven rate, the breakeven timeline could be delayed to early 2019, due to the upcoming fare cut of up to 5.7%. For this, we trimmed FY18E rail EBIT to -SGD5m from +SGD5m and FY19E to SGD23m from SGD27m.


Uber tie-up to be finalised soon & should be positive 

  • According to management, potential benefits from Uber tie-up include: 
    1. exposure to the private hire vehicle segment, part of the supply chain that has been taking away its taxi market share;
    2. tie-up with a player with deeper pockets who could share complementary strategies; and
    3. tap Uber’s technology. Also, Uber enhanced its loyalty and marketing programme recently.


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.







John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-11-13
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 2.400 Same 2.400



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