ComfortDelGro - UOB Kay Hian 2016-02-15: 4Q15 Within Expectations; Defensive Shield In Tough Times

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COMFORTDELGRO CORPORATION LTD C52.SI 

ComfortDelGro Corporation (CD SP) 4Q15: Within Expectations; Defensive Shield In Tough Times 

• CD’s 2015 results were in line with expectations. 
• Net profit grew 6.5% yoy to S$302m. Costs were well contained and operating margins were maintained. 
• We remain positive on its resilient outlook, strong cash flow generation and sustainable dividends. 
• Maintain BUY and reduce our DCF-based target price to S$3.16 (previously S$3.30). 

RESULTS 

• No surprises in FY15. 

• ComfortDelGro’s (CD) results were in line with our and market expectations. 
• Net profit grew 6.5% yoy to S$302m in 2015, underpinned by a slight 0.1ppt rise in operating margin to 11% and a decline in effective tax rate to 19.5% (from 21.2% in 2014). The latter was due to a 1% reduction in the UK tax rate and the lack of nondeductible expenses. 

• Costs well contained, operating margins maintained. 

• Despite the upward pressure in costs, management contained costs well, with operating margin holding up at 11.0% (2014: 10.9%). 
• Staff costs rose 3.3% yoy, ahead of the roll-out of Downtown Line 2 (DTL2) but this was mitigated by lower fuel & electricity costs (-8.5% yoy). 
• The bus and taxi segments were the star performers, with operating profits up 6.0% yoy and 8.6% yoy respectively. 

• Solid cash flow and higher dividends; what’s not to like? 

• Cash balance rose to S$229.2m (S$0.11/share) as at end-15 on the back of strong cash flows. 
• CD nudged its dividend payout higher to 64.1% in FY15 (2014: 62.2%) with a final DPS of 5.0 cents/share. 

ESSENTIALS 

• All eyes on the competitive landscape in taxi. 

• During the results briefing, a lot of questions were aimed at third-party tax booking apps such as Uber and GrabTaxi and their impact on CD. 
• As an indication of high utilisation, management revealed that its taxi idle rate was 0.8%, with the idle taxis primarily replacement taxis or in the process of being de-registered. 
• The group is also consistently improving its own booking app and selectively offering promotions. Interestingly, we note that incentives given by third-party booking apps have been trending down and are now less attractive for taxi drivers. 

• DTL3 targeted for commencement in Jun 17. 

• Now that DTL2 has started operating since 27 Dec 15, the final step is the targeted completion of the last stage - DTL3 - in Jun 17. The DTL is still loss-making but we think this should progressively improve after DTL3 opens. 
• In the case of the North East Line (NEL), the line opened in Jun 03 and took circa three years to break even. 

• Capex guidance. 

• For 2016, we understand the capex could be about S$500m but this is relatively fluid and dependent on the final terms of the bus financing framework. 
• If the authorities pay upfront for the bus ownership, CD’s capex could decline significantly. Negotiations are progressing well and an outcome is expected from Jun 16 and for implementation in Sep 16. 

EARNINGS REVISION/RISK 

• Earnings adjusted slightly down after final results. 

• We trim our 2016-17 net profit forecasts by 2% each to factor in elevated costs ahead of the opening of DTL3 in 2017. 
• In addition, we introduce our 2018 net profit forecast. 
• The group continues to deliver and we forecast CD to register a healthy 3-year net profit CAGR of 10% over 2016-18. 

• Key risks include weaker ridership or lower-than-expected average fare increases at its bus and rail divisions. 

• Another risk is the negative impact on taxi revenue due to thirdparty taxi apps as well as the difficulty in attracting younger taxi drivers. 

VALUATION/RECOMMENDATION 

• Maintain BUY and reduce our DCF-based target price to S$3.16 (previously S$3.30). 

• Against an uncertain macro outlook, we find CD’s resilient earnings and strong cash flows an attractive defensive shield. 
• Depending on the final terms of the bus financing framework, we see a potential for a special dividend of 5.6-6.2 cents/share. This assumes SBS disposes its bus assets in Singapore at book value and pays out 50% of its net cash after the repayment of debt. 

SHARE PRICE CATALYST 

• More accretive overseas acquisitions. 
• Favourable terms in the bus financing framework. 
• Special dividends in 2016.

Andrew Chow CFA UOB Kay Hian | http://research.uobkayhian.com/ 2016-02-15

UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 3.16 Down 3.30