Maybank Kim Eng 2015-08-14: ComfortDelgro - 2Q15 in line; Still No Signs of Taxi Weakness. Maintain SELL.

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COMFORTDELGRO CORPORATION LTD C52.SI

Still No Signs of Taxi Weakness 

• 2Q15 in line. Interim DPS raised to 4 SGD cts. Incurred higher CAPEX to renew bus and taxi fleet. 
• Aware of the evolving landscape for its taxi business. Deliberating a response at the board level. 
• Valuations remain stretched at top-end of historical P/E range. Consensus is underestimating the growing threats to its taxi business. 
• Maintain SELL with unchanged SGD2.70 TP. 

Profits in line, higher CAPEX to renew buses and taxis 

• 2Q15 net income was SGD80.9m (+6.9% YoY), in line. 
• Interim DPS was raised by 0.25 SGD cts to 4.00 SGD cts, representing a payout ratio of 57.8%. 
• The automotive & engineering services, rail and driving centre units reported lower profits, while profitability improved for the rest of the business. 
• CDG went into a net debt position after incurring higher gross CAPEX of SGD227.3m, of which buses and taxis accounted for 88% of total. 
• It incurred losses in diesel sales to taxi drivers due to fuel hedges at higher prices. Taxi hire out rates remain high and it sees little impact from the new entrants. 
• It will be participating in the upcoming tender for the second package of bus routes in the market. 
• Strong rail profits at NEL are currently used to subsidize start-up losses at the DTL, which is expected to breakeven in the middle of stage two. 

Deliberating taxi response at the board level 

• During the results call, management highlighted that it is aware of the evolving business landscape for its taxi business and is currently deliberating a response at the board level. We are heartened by these efforts. 
• However, we reiterate our view that the Street may be underestimating the growing threats to its taxi business, which may see profit structural weakness in the future. 
• Valuations remain stretched with the stock trading at the top-end of its historical P/E range. 
• Maintain SELL with SGD2.70 TP, based on 17x FY16E EPS (0.5 SD above its 10-year average).

Derrick Heng CFA | http://www.maybank-ke.com.sg/ Maybank KE 2015-08-14

SELL Maintain SELL 2.70 Same 2.70