ComfortDelGro - Maybank Kim Eng 2016-02-15: Weathering the storm

COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro (CD SP) - Weathering the storm

We upgrade ComfortDelGro to HOLD from SELL as taxi earnings appear resilient, despite threats from new entrants.
Furthermore, the valuation is off the peak following share price weakness during the past year.
We raise our FY16/17E EPS by 5.2%/6.9% mainly to reflect upwards revisions to our taxi forecasts.

Our TP is lifted 3.7% to SGD2.80 based on an unchanged 17x FY16E, 1SD above its long-term average.
We expect robust EPS growth to provide valuation support.

4Q15 net income of SGD68.2m (+7.1% YoY, -20.0% QoQ) was marginally above with full year 2.8% above estimates.
A small loss of SGD2.2m for the rail segment was due to start-up losses for DTL Stage 2, which was the only weak spot in the results.
Full year DPS improved to 9 SGD cts.

Contrary to our expectations for some sign of weakness, the taxi business delivered solid EBIT of SGD163.9m (+8.6% YoY) for FY15.
It appears that new entrants have yet to affect profitability of traditional operators.
We also attribute this resilience to:
1. support to driver’s earnings from rising income in Singapore (2015 median income up 6.5%YoY);
2. general taxi shortfall in the market; and 3) rebounding tourism traffic.
Management guides that only 0.8% of its fleet is currently idle.

We stay cautious on the Singapore bus and rail business transition.
While the bus operators will transit to a new operating model from Sep 2016, details of the asset transfer remain under negotiation, and one should not be too certain of a windfall from any asset sale.
While the DTL could remain loss making as it prepares for the opening of Stage 3 in 2017, we expect the overall rail segment to stay profitable due to support from the mature NEL.
It is also important to note that the 75%-stake in SBS Transit (Not Rated) accounts for just 7.6% CDG’s stock value.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-02-15

Maybank Kim Eng SGX Stock Analyst Report HOLD Upgrade SELL 2.80 Up 2.70