DBS Vickers 2015-08-14: ComfortDelgro - 2Q15; On schedule with no surprises. Maintain HOLD.


On schedule with no surprises

  • 2Q15 net profit within expectations; 4 Scts DPS declared. 
  • Benefits of lower oil price negated by other costs. 
  • Transfer of BSEP bus assets by 31 Dec; new operator yet to offer package to bus drivers. 
  • Steady growth but valuations reflect positives; Maintain HOLD, TP at S$3.00. 


2Q15 results stable as expected. 

  • 2Q15 net profit increased by 6.9% to S$80.9m on the back of revenue growth of 2.1% to S$1.04bn. Revenue growth was driven by all segments, except driving centre and automotive engineering due to lower selling prices of diesel to taxi drivers. 1H15 net profit forms 49% of our FY15F forecasts, similar to last year. 
  • DPS of 4 Scts was declared, up from 3.75 Scts in 1H14 

Lower oil price offset by other increases. 

  • Operating profit increased marginally to S$120.9m. 
  • While CD benefitted from lower fuel and energy prices (-10.2%), this was negated by other costs increases such as staff (+3.1%), depreciation (+9.2%) and payment for contract services (+7.2%) among others. As a result, total operating expenses increased by 2.2% y-o-y, just a tad higher than revenue growth. 

Transfer of bus drivers still in progress; BSEP assets to complete by 31 Dec 2015. 

  • The bus drivers related to the Bulim bus contract are still awaiting for Tower Transit to offer a package. It was noted that the new operator would have to offer a similar, if not better package to the bus drivers. In an earlier announcement on 31 July 2015, we note that LTA has exercised its rights to transfer the Bus Service Enhancement Programme (BSEP)’s 427 buses back to itself by 31 Dec 2015. The purchase consideration will be equivalent to the outstanding loan of S$164m. 


Stable performance to continue. 

  • We expect CD’s growth profile to continue for the rest of 2015, benefitting from lower oil price compared to 2014, but partially offset by higher other operating costs and lower fares from Dec 2015. 
  • We expect the company to deliver 8% y-o-y growth for FY15F. Lower oil price a positive. CD has hedged 65% of its fuel requirements in Singapore for FY15 and 26% for FY16F. This could provide marginal upside to earnings and margins for FY15F. 

New acquisitions could help in growth rate. 

  • We believe that management will continue to leverage on its balance sheet to deliver on bite-sized acquisitions to supplement growth. However, timing is uncertain. 


  • Our target price is S$3.00, derived from the average valuations using discounted cash flow (DCF) and price- earnings ratio (PER) methods. 
  • We adopt a DCF model as the business provides stable and predictable cashflows, while the PER methodology takes into account near-term earnings growth. 
  • We peg our PER valuation at 15x FY15F/16F earnings, based on its historical trading average. 
  • The DCF methodology is based on a weighted cost of capital of 7.5% and a terminal growth assumption of 1%. 
  • Our TP implies a PE of 21x on FY15F earnings, which is +2 std deviation above its historical average. This should have priced in the asset- light model for the bus operations in Singapore. 

Key Risks: 

Oil price surge. 

  • Energy and fuel costs account for about 8% of CD's sales and a surge in oil price may impact margins and vice versa, though this is partially mitigated by its hedging policies. 

Regulatory risks. 

  • Lower-than-expected fare increase or higher than expected fare decreases may impact our forecasts.

Andy SIM CFA | http://www.dbsvickers.com/ DBS Securities 2015-08-14
HOLD Maintain HOLD 3.00 Same 3.00