ComfortDelgro - DBS Research 2016-05-13: 1Q growth above average trend

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COMFORTDELGRO CORPORATION LTD C52.SI 

ComfortDelgro - 1Q growth above average trend

• 1Q16 growth above average trend but slightly behind due to FX translation
• EBIT margins improved on lower oil price
• Projecting above-average growth of 10-11%
• Maintain BUY, TP S$3.23

Maintain BUY, TP adjusted to S$3.23. 

• We maintain our BUY recommendation on CD as we expect the Group to see margin expansion on the back of lower fuel prices, coupled with the transition to the Government Bus Contract model from 1 September 2016. 
• With lower capex needs, we believe there are upside for management to progressively increase its dividend payout.

1Q16 results above average trend but slightly behind due to FX translation. 

• 1Q16 net profit grew 8.6% y-o-y to S$73.4m, on the back of 3.3% growth in revenue to S$996m. 
• While this was marginally behind our expectations (c.10%), the effects were largely due to translation effects of GBP and AUD. We estimate that the impact on operating profits was about 1.3%. 
• Notwithstanding, growth was still above the Group’s average trend of c.6%. 
• EBIT margins improved marginally by 40bps to 11%, from 10.7% in 1Q15 due to lower fuel/electricity costs, and materials and consumables, offset partially by higher staff, repair & maintenance and other operating expenses.

Adjusting for lower GBP/AUD, but FY16F growth still above average. 

• We trimmed our forecasts marginally by 4.7%, to factor in a weaker GBP and AUD against SGD, coupled with higher repair and maintenance assumption. 
• We maintain our positive view on the counter given our view that profit growth would be above average trend in FY16F/17F of c.10-11% (vs average of 6%, coupled with a visible earnings trend. 
• We also believe there is potential for a higher payout ratio (from FY15's 64%) given the lower capex needs and its high cash level.

Valuation:

• Our target price is adjusted to S$3.23, based on average of discounted cash flow (DCF) and price-earnings ratio (PER) methods. 
• Our TP implies a PE of 18.8x on forward FY17F earnings, which is +1SD above its historical average, factoring in the asset-light model for the bus operations in Singapore. 

Key Risks to Our View:

• Loss of bus contracts, changes in regulations on operations, and currency swings may impact our forecasts.

Andy Sim CFA DBS Vickers | http://www.dbsvickers.com/ 2016-05-13

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