ComfortDelgro - DBS Research 2016-02-15: Time To Board Again

ComfortDelgro - DBS Research 2016-02-15: Time To Board Again COMFORTDELGRO CORPORATION LTD C52.SI 

ComfortDelgro - Time To Board Again 

  • Upgrade to BUY, TP raised to S$3.24 
  • Projecting above average growth of 15% in FY16F on lower oil price, improvement in margins 
  • Not expecting lump sum cash from bus assets; base case assumption is progressive asset transfer 
  • 4Q15 within expectations; FY15 posts 6% earnings growth 

Upgrade to BUY, TP raised to S$3.24. 

  • We upgrade our recommendation for ComfortDelgro (CD) to BUY (from HOLD) with a revised TP of S$3.24. 
  • Share price has weakened by c.8% YTD and we believe this presents an opportune time to accumulate as oil prices have dropped c.20% YTD, which bodes well for margins. 

4Q15 results within expectations. 

  • 4Q15 net profit grew by 7.1% y-o-y to S$68.2m, while revenue reached S$1.06bn (+1.5%). For FY15, CD’s net profit ended the year at S$302m (+6.5% y-o-y) on the back of 1.5% growth in revenue to S$4.11bn. 
  • Revenue growth was driven by Bus, Taxis, Rail and Car Rental and Leasing businesses, offset by a decline in Automotive Engineering due to lower prices of diesel sales. 
  • EBIT improved marginally to 11% with increases in staff and depreciation costs offset by lower fuel and electricity costs. 
  • Despite more competition, management shared that its taxi hire-out rate remains high, as evidenced by continued growth in its operating profit. 

Stronger FY16F growth projected; valuations more palatable. 

  • With share price down recently, valuations look more palatable at 17x/ 16x FY16F/17F on the back of a stronger FY16F growth. 
  • Current price is also within the S$2.70-S$2.80 range that we had earlier stated that we would be comfortable to accumulate. 
  • Though we are not expecting a significant onetime cash payout for the Singapore bus assets, the transition to the new model should bode well and relief it of future capital expenditures. 


  • Our target price is raised to S$3.24, 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 FY17F earnings, which is +1 std deviation above its historical average factoring in the asset-light model for the bus operations in Singapore. 

Key Risks to Our View: 

  • 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/ 2016-02-15
DBS Vickers SGX Stock Analyst Report BUY Upgrade HOLD 3.24 Up 3.00