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

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 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.

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.

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