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
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http://research.uobkayhian.com/
2016-02-11
UOB Kay Hian
SGX Stock
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3.30
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3.30