ComfortDelGro - CIMB Research 2016-05-13: A decent start to FY16

ComfortDelGro - CIMB Research 2016-05-13: A decent start to FY16 COMFORTDELGRO CORPORATION LTD C52.SI 

ComfortDelGro - A decent start to FY16 

  • 1Q16 broadly in line at 21% of our FY16 forecast; net profit rose 8.6% yoy on the back of higher profit from automotive engineering services, taxi and bus businesses. 
  • Rail revenue rose 27% yoy on the DTL stage II contribution. Rail operating profit was only flat yoy due to gestation period of stage II and cost build-up for stage III. 
  • Taxi operation remained sound, with a c.100% taxi hire-out rate. 
  • We are hopeful of a stronger 2H, with Singapore public buses’ transition to the GCM, and continued ridership growth of the DTL. 
  • Maintain Add, with a target price of S$3.27 based on CY16 DCF (WACC: 7.5%). 

1Q16 financial highlights 

  • Group revenue rose 3.3% yoy in 1Q16, led by growth in bus, rail and taxi businesses. 
  • Operating profit rose S$6.3m, or 6.1% yoy in 1Q16 due to higher profit from automotive engineering services, taxi and bus businesses. 
  • Net profit rose 8.6% yoy to S$73.4m in 1Q16 (1Q15: S$67.6m). 
  • Net cash position strengthened further to S$401m as at end- 1Q16 (end-4Q15: S$229m), thanks to the group’s strong operating cashflow. 

Bus profit improved on fuel cost savings 

  • Bus EBIT rose 3.7% yoy in 1Q16, driven by higher Singapore public bus profit, thanks to diesel cost savings, but partly offset by 
    1. the lower profit from Singapore’s private coach operation due to fewer public activities and 
    2. a softer overseas bus contribution due to adverse FX translation. 
  • We continue to expect a brisk bus outlook ahead, underpinned by the expanded UK public bus operations and a potentially improving Singapore public bus profitability after the transition to the Government Contracting Model (GCM). 

Flat rail profit despite the fresh DTL stage II contribution 

  • Rail EBIT was flat yoy in 1Q16, despite 27% yoy growth in revenue due to the full quarter contribution of the Downtown Line (DTL) stage II operations. 
  • The flat rail EBIT was due mainly to the gestation period that DTL stage II has to go through and the cost build-up for DTL stage III operations. 
  • We expect the rail performance to gradually pick up in the remainder of FY16 as the ridership of the DTL continues to grow. 
  • We expect the DTL to manage a turnaround by 2H17, when stage III commences operations. 

Taxi operation remained sound, with zero idling rate 

  • Taxi EBIT rose 5.2% yoy in 1Q16, driven by fleet expansion and higher rental from the replacement of old taxis. 
  • Management said that CDG’s taxi bookings have seen a healthy high single-digit yoy growth in Apr and the group still has a zero idling rate as of today. 
  • CDG is closely monitoring the COE prices for the replacement of its c.2,000 old Hyundai Sonata taxis (daily rental of c.S$100 per taxi) with the new Hyundai I40 model (daily rental of c.S$130 per taxi). 

Maintain Add 

  • We maintain our Add rating on CDG, with an unchanged target price of S$3.27, based on a CY16 DCF valuation (WACC: 7.5%). 
  • Potential capital unlocking from bus sales and improving bus profit post-reform should be the key re-rating catalysts for FY16, while the turnaround of the DTL would be the key catalyst for FY17.

Roy CHEN CIMB Securities | William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2016-03-15
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 3.27 Same 3.27