RHB Securities 2015-08-14: ComfortDelGro - 2Q15; Steady As She Goes. Maintain NEUTRAL.


Steady As She Goes 

  • 1H15 profit of SGD149m (+6.8% YoY) accounted for 50% of our FY15 estimate. 
  • CD witnessed revenue growth across all business segments except automotive engineering services. 
  • We lower FY16F profit by 1.4% to account for a 1.9% decline in public transport fares starting Dec 2015. 
  • Maintain NEUTRAL with a DCF-based SGD2.86 TP (from SGD2.90, 5% downside), given muted FY15 earnings growth. 
  • CD’s current share price already seems to be pricing in strong earnings growth for FY16. 

 Bus and taxi continue to drive growth. 

  • In 2Q15, the bus segment reported EBIT of SGD50m (+4% YoY, +41% QoQ) with overseas business accounting for 80% of the profit, while 28% of the taxi segment’s SGD44m (+7% YoY, +20% QoQ) EBIT was contributed by overseas ventures. Both segments together accounted for 78% of EBIT in 2Q15 and 1H15. 

 Automotive engineering profit falls on high diesel hedge. 

  • The decline in segment profit to SGD9m (-21% YoY, -6% QoQ) in 2Q15 was mainly due to sale of diesel to taxi hirers at prices lower than the hedged price. ComfortDelGro (CD) has hedged 60% of its estimated diesel sales to taxi hirers for FY15 and 35% for FY16. For FY16, CD has also hedged 26% of diesel and 20% of electricity for self consumption. 

 Newer taxi fleet translates into higher revenue. 

  • CD replaces 2,000- 3,000 taxis each year. The timing of fleet replacement during the year depends on the nature of car available and the prevalent certificate of entitlement (COE) price. Newer taxi fleet has led to an increase in rental rates, which management said is sustainable over the next few quarters. CD does not see Uber or GrabTaxi as a major threat to its existing taxi business in Singapore. 

 Downtown Line (DTL) may turn profitable in early 2017. 

  • Management highlighted that DTL should break even by end-2016, when the ridership for existing DTL1 and DTL2, which will open in Dec 2015, reaches maturity. 

 Maintain NEUTRAL. 

  • While clarity on payment terms for CD’s existing buses under the new bus contracting model and winning of either of the two upcoming bus tenders should boost earnings beyond FY16, above historical valuations and muted FY15 growth justifies a NEUTRAL rating.

Shekhar Jaiswal + | http://www.rhbgroub.com/ RHB Securities 2015-08-14
NEUTRAL Maintain NEUTRAL 2.86 Down 2.90