ComfortDelGro (CD SP) - RHB Invest 2015-11-16: 9M15 Slight Ahead But Growth Is Priced In

ComfortDelGro (CD SP) - RHB Invest 2015-11-16: 9M15 Slight Ahead But Growth Is Priced In COMFORTDELGRO CORPORATION LTD C52.SI 

ComfortDelGro (CD SP) - 9M15 Slight Ahead But Growth Is Priced In 

  • 9M15 profit of SGD233.7m made up 79%/77% of our/consensus estimates. 
  • Maintain NEUTRAL with a DCF-based SGD2.86 TP (4% downside). 
  • Revenue growth from bus, rail and taxi was offset by a decline in automotive engineering revenue. 
  • Profit growth from bus and taxi remained strong as margins expanded for both businesses. 
  • Estimates would be lifted on clearer payment terms for CD’s existing buses under the new contracting model or it winning a bus tender. 

 Steady growth. 

  • 3Q15 profit grew 5.4% YoY to SGD85.2m aided by revenue growth from bus, taxi and rail. ComfortDelGro Corporation (CD) also witnessed reduced operating costs especially related to fuel and materials costs. Bus and rail ridership increased and CD earned higher taxi leasing rate. 
  • Staff costs, the largest operating costs, increased 3.1% YoY in line with the preparation for the launch of Downtown Line (DTL) 2 in December and higher number of Bus Service Enhancement Program (BSEP) buses. 

 No impact from competition to taxi. 

  • While the queue to take up new taxis from CD has shortened, the leasing rate for CD’s taxi fleet is close to 100%. 
  • CD believes private car apps are addressing the demand that is not met by taxis, as it has not seen decline in the number of bookings. It accelerated its taxi fleet replacement to take advantage of low COE prices, and has earmarked additional capex to upgrade rest of its fleet. 

 Positive revenue outlook for bus and taxi businesses. 

  • CD is guiding for a rise in bus, rail and taxi business revenue. Revenue growth would be driven by an increase in ridership for bus, higher leasing out rate for Singapore taxi and contribution from the start of operations at DTL2. 
  • In contrast, revenue from its automotive engineering and inspection & testing services is expected to decline. 

 M&A prospects seem limited. 

  • While a strong net cash balance sheet does provide opportunities for mergers and acquisition (M&A) activity, management believes that a weak macroeconomic environment would be the prospect of M&As in 2016. 

 Maintain NEUTRAL rating with unchanged TP. 

  • Our 12-month DCF-based SGD2.86 TP is derived using a WACC of 9.4% (risk free rate of 2.3%, beta of 0.95, risk premium of 8.2%, a target debt ratio of 10% and a terminal growth rate of 1%).

Shekhar Jaiswal RHB Research | http://www.rhbinvest.com.sg/ 2015-11-16
RHB Research SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 2.86 Same 2.86