ComfortDelGro - Maybank Kim Eng 2016-04-05: Buyers Beware

ComfortDelGro - Maybank Kim Eng 2016-04-05: Buyers Beware COMFORTDELGRO CORPORATION LTD C52.SI 

ComfortDelGro (CD SP) - Buyers Beware 


Stay Cautious; Maintain HOLD 

  • We continue to believe that structural threats to its taxi business cannot be ignored despite resilient earnings so far. 
  • The fleet of private-hire cars is now more than a quarter of taxi fleet in the market. The recent decline in COE prices may provide a golden opportunity for new entrants to expand. 
  • It also appears that the government did not budget for a purchase of its bus assets and expectations of a windfall from asset sales by incumbents will not be met. 
  • Maintain HOLD. TP of SGD2.80, based on 17x FY16E EPS, 1SD above average for decent EPS growth profile. 

Do not ignore the structural threats to taxi 

  • Using statistics on Sole-Proprietors and Partnerships registered for the Transport and Storage industry, we estimate that there could be 7,500 private-hire cars in the market today. This is more than a quarter of the 28,200 taxis in the market and almost half of CDG’s taxi fleet of 17,000. 
  • We believe that the recent decline in COE prices may provide a golden opportunity for the new entrants to replace their older fleets and expand their presence. Competition may intensify. 

Catalyst from sale of bus assets unlikely 

  • As highlighted in our team’s commentary on the Singapore budget, the government’s bus procurement budget of SGD224.8m for this year is much smaller than the SGD1b of bus assets held by the incumbents. Therefore, we opine that expectations of a windfall from the sale of its bus assets are unlikely to be met. 

SG bus and rail to lead growth; SBST a better proxy? 

  • Taxi was a key driver of CDG’s earnings over the past five years. However, given the headwinds to its business, we project flat taxi earnings into the future. 
  • We expect its Singapore bus and rail business to lead growth over the next three years and opine that SBS Transit (Not Rated), its 75%-owned subsidiary, may be a better proxy than CDG. This is because investors in the parent will have to assume risks from the structural threats to its taxi business.



Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-04-05
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.80 Same 2.80


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