ComfortDelgro - DBS Research 2015-11-16: Awaiting a more comfortable ride

COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelgro - Awaiting a more comfortable ride

We maintain our HOLD recommendation for ComfortDelgro (CD) with a TP of S$3.00, based on an average of PE and DCF valuations.
CD’s share price has outperformed the broader market YTD, which we believe has priced in positives from potential changes to policies.

Net profit registered a 5.4% y-o-y increase to S$85.2m.
Operating costs increased by a tad slower at 0.6% to S$919m, vis-à-vis topline growth of 1% y-o-y to S$1.05bn. Thus, EBIT grew by 4.1% y-o-y S$129m, from S$123.9m a year ago.
As a result of lower interest expenses with loans repaid by its UK operations, net profit grew slightly faster. 9M15 net profit forms 77% of our forecasts (9M14: 77.5%).
Management revealed that its taxi bookings are still on a growth trend, and its hired out rate remains high despite competition from third party booking apps.

We like CD for its stable growth and geographical diversification. However, we believe this has been priced in at this juncture with the counter trading at about +1.5 std deviation above its 5-year historical average.
In our view, this could already imply that the potential upside from the bus reforms could have been priced in, partially, if not mostly.
We would prefer to accumulate at a lower price, at c.10-15% lower from our TP.

Our target price is S$3.00, derived from the average valuations using discounted cash flow (DCF) and price-earnings ratio (PER) methods.
Our TP implies a PE of 18.8x on forward FY16F earnings, which is +1 std deviation above its historical average. This should have priced in the asset-light model for the bus operations in Singapore.

Regulatory risks. Lower-than-expected fare increase, and or changes in regulations to the operations, may impact our forecasts.

Andy Sim DBS Vickers | http://www.dbsvickers.com/ 2015-11-16

DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 3.00 Same 3.00