ComfortDelGro - UOB Kay Hian 2016-02-11: 2015 Results Preview ~ Expect A Firm Performance On Solid Results From SBS

ComfortDelGro - UOB Kay Hian 2016-02-11: 2015 Results Preview ~ Expect A Firm Performance On Solid Results From SBS COMFORTDELGRO CORPORATION LTD C52.SI 

ComfortDelGro Corporation (CD SP) 2015 Results Preview: Expect A Firm Performance On Solid Results From SBS 

  • SBS reported solid 2015 results, with net profit rising 17% yoy, buoyed by firm topline growth from the bus and rail segments. 
  • We expect no major surprises from CD’s 2015 full-year results to be released this Friday. 
  • Maintain BUY with DCF-based target price of S$3.30. 
  • Potential catalyst is a special dividend from the new bus framework. 


WHAT’S NEW 


 Strong showing from SBS Transit. 

  • SBS Transit (NOT RATED) recently released its 2015 full-year results. Net profit grew 17% yoy, helped by a 29bp rise in operating margin to 2.46%. 
  • Despite a 9.7% yoy rise in staff costs, total cost grew 7.4% yoy as key cost components such as fuel and electricity (-5.5% yoy) and repairs & maintenance (+5.1% yoy) grew slower than turnover growth. 

 Getting ready for DTL2. 

  • Staff cost grew 9.7% yoy in 2015 and exceeded turnover growth as the group built up its staff strength ahead of the opening of Downtown Line 2 (DTL 2) on 27 Dec 15. 
  • The average daily ridership at DTL1 rose 23.5% yoy to 76,000 passenger trips. 
  • We expect ridership to enjoy a further boost after the opening of DTL2 due to the improved network and connectivity. 

 SBS lowering debt. 

  • SBS’s net gearing fell to 98% as at Dec 15 (2014: 156%) due mainly to the repayment of loans under the Bus Service Enhancement Programme (BSEP). 
  • Despite its relatively high gearing, interest cover remained high at 4.3x. 


STOCK IMPACT 


 Don’t expect too much special dividends for CD. 

  • We estimate the book value of SBS’s buses as at Dec 15 at S$810m. 
  • Assuming the disposal of the buses at book value and the repayment of its total debt and net trade payables (amounting to S$488.8m), we estimate SBS could pay out a net cash balance of S$321m as special dividend. 
  • Assuming a 50% payout, this works out to 5.6 S cents per CD share. 
  • No timing guidance has been provided and we estimate this to be in 2H16 or even stretching into 1H17. 


EARNINGS REVISION/RISK 

  • No change to our earnings forecasts ahead of the release of CD’s 2015 results this Friday (12 February) after market close. On our estimates, the group remains on track to register a 3-year EPS CAGR of 11%. This and its strong cash generation capabilities look attractive in view of the market uncertainties. 
  • Key risks include weaker ridership or lower-than-expected average fare increase at its bus and rail divisions. Non-accretive acquisitions could also be another risk. 


VALUATION/RECOMMENDATION 


 BUY for visibility and execution. 

  • CD’s outlook remains resilient as we expect a 3-year EPS CAGR of 11%. 
  • More importantly, CD is well-positioned for growth due to its diversified earnings as well as strong balance sheet. Our DCF-based target price of S$3.30 implies 2.3x 2016F P/B, which is above its long-term mean of 2.05x since 2007. 
  • We think the P/B premium is deserved as our 2016 forecast ROE of 14.4% is higher than its long-term average ROE of 12.5%. 
  • In addition, the shift in Singapore’s bus operations to a low-capex model will also result in stronger operating cash flows going forward. 


SHARE PRICE CATALYST 

  • More accretive overseas acquisitions. 
  • New financing framework for the rail segment.



Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2016-02-11
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 3.30 Same 3.30


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