ComfortDelGro - CIMB Research 2016-02-15: Looking at an upbeat 2016

ComfortDelGro - CIMB Research 2016-02-15: Looking at an upbeat 2016 COMFORTDELGRO CORPORATION LTD C52.SI 

ComfortDelGro - Looking at an upbeat 2016 

  • FY15 net profit was in line, at 101% of our forecast; rising 6.5% yoy. 
  • Taxi hire-out rate stayed close to 100% and taxi EBIT rose 8.6% yoy in FY15. 
  • Singapore bus reform is progressing smoothly and we expect the terms of the bus asset transfer to be disclosed in the next few months. 
  • We expect DTL losses to narrow in FY16, helped by the stage II operations; the DTL should turn around by 2H17, when stage III starts operations. 
  • Maintain Add, with unchanged TP of S$3.27, based on CY16 DCF (WACC: 7.5%) 

■ FY15 net profit rose 6.5% yoy; DPS increased to 9 Scts 

  • FY15 group revenue rose 1.5% yoy to S$4.1bn, led by the bus, taxi and rail businesses. EBIT rose S$9m, or 1.9% yoy in FY15 due to higher taxi and bus profit, partly offset by lower rail and automotive engineering profit. Net profit rose 6.5% yoy to S$302m in FY15 (FY14: S$284m).
  • The group declared a final DPS of 5 Scts, raising FY15 DPS to 9 Scts (FY14: 8.25 Scts); that is equivalent to dividend yield of 3.2%. 

■ Taxi business remained upbeat, with a c.100% hire-out rate 

  • Taxi EBIT rose 8.6% yoy to S$164m in FY15 (FY14: S$151m) due to fleet expansion and higher rental from the replacement of old taxis. 
  • Management said that as of the last week, CDG only had 122 unhired taxis (including the taxis that were off-road for maintenance purposes), representing 0.8% of its total fleet of c.16,900 taxis. 
  • CDG is the only operator that has consistently met the Land Transport Authority’s (LTA) Taxi Availability Standards, a prerequisite for annual fleet expansion of up to 2%. 

■ Bus EBIT improved on lower fuel price; GCM to start in Sep 2016 

  • Bus EBIT rose 6% yoy to S$175m in FY15 (FY14: S$165m), as the group’s Singapore bus operations benefited from cheaper diesel prices. FY15 operating profit of its overseas bus operations was flat yoy, as gains in profit were negated by adverse FX translation from the weaker £ and A$. 
  • The ongoing Singapore bus reform to the government contracting model (GCM) is progressing smoothly and we expect the authorities to provide more details on the bus asset transfer terms in next few months. 

■ Expanding rail profitability in FY16-18F on the DTL turnaround 

  • CDG’s lower rail EBIT of S$3.2m in FY15 (FY14: S$8.3m) was due to the headcount build-up for the Downtown Line (DTL) stage II, which commenced operations on 27 Dec 2015. Since starting operations in Dec 2013, DTL stage I has been a drag on CDG’s overall rail profitability due to the lack of scale. 
  • We expect the DTL losses to narrow significantly in FY16, helped by the commencement of stage II operations. 
  • We anticipate that the DTL will turn around by 2H17, when stage III commences operations. 

■ Maintain Add with an unchanged target price of S$3.27 

  • We expect a bright outlook for CDG ahead, with potential capital unlocking from bus sales and higher bus profitability post-reform. 
  • In our view, rail profit will expand in FY16- 18, on the back of ridership growth from DTL stages II and III commencing operations. 
  • We believe the threat from Uber and Grab has been overhyped (see our 10 Feb 2016 sector note titled “Kicking the tires - Taxis vs. Uber/Grab”). CDG has a strong balance sheet (S$229m net cash at end-FY15) to pursue growth via M&As. 

Roy CHEN CIMB Securities | William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2016-02-15
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 3.27 Same 3.27