CIMB Securities 2015-08-13: ComfortDelgro - 2Q15; The rail is on track. Maintain ADD.


The rail is on track 

  • At 47%/48% of our/consensus forecasts, ComfortDelGro (CDG)’s 1H15 core net profit was broadly in line with our expectations. 
  • We trim down our FY15 core EPS estimate by 4.0% to account for the higher start-up cost for the commencement of the Downtown Line (DTL) stage II operations by end-15, while keeping our FY16-17 core EPS estimates. 
  • Maintain Add, with an unchanged target price of S$3.39, based on CY15 DCF valuation. 
  • The earnings contribution from DTL stage II is the key re-rating catalyst in the near term, and overseas expansion via M&A is a longer-term catalyst. 

Decent 2Q results partially offset by unfavourable FX 

  • Despite the unfavourable FX impact from the weak £ and A$, CDG’s 2Q15 revenue rose 1.3% yoy on broad-based growth, except for the automotive engineering division due to the lower diesel selling price to CDG’s taxi hirers. 
  • The yoy gains in operating profit for the taxi (+S$2.9m) and bus (+S$2.0m) businesses were partially offset by the declines in automotive engineering (-S$2.4m) and rail (-S$1.5m). Thus, group operating profit was marginally up by S$1m yoy to S$121m in 2Q15 (2Q14: S$120m). 
  • Helped by higher investment income and lower finance cost, CDG’s net profit increased S$5.2m, or 6.9% yoy. 
  • CDG declared an interim DPS of 4 Scts for 1H15 (1H14: 3.75 Scts). 

Positive revenue outlook but higher DTL start-up cost in 2H 

  • CDG guided for positive 2H15 revenue outlook for its three key business divisions, namely bus, rail and taxi, which contributed 87%/73% of CDG’s FY14 revenue/operating profit. The earnings of the automotive engineering division is likely to stay subdued due to the lower diesel selling price against the purchase price, given the previous hedge applied. 
  • CDG has hedged 65%/25% of its energy consumption for FY15/16 and does not intend to hedge further, unless there are signs of a bounce in fuel prices in the future. 
  • Management expects higher start-up cost in 2H due to the headcount build-up for DTL stage II, slated to commence operations in Dec 2015. 

Key industry developments progress well 

  • Management said transfer of the BSEP buses and captains for the Bulim bus operations has been smooth. The group will submit a bid for the second bus package (Loyang) shortly. DTL stage III is on track to commence operations in FY17. 
  • CDG also indicated its interest in bidding for the operation of the Thomson-East Coast Line, which is slated to commence operations in 2019.

Roy CHEN | William TNG CFA | http://research.itradecimb.com/ CIMB Securities 2015-08-13
ADD Maintain ADD 3.39 Same 3.39