ComfortDelGro - Maybank Kim Eng 2016-05-13: Early Signs of Taxi Weakness

ComfortDelGro - Maybank Kim Eng 2016-05-13: Early Signs of Taxi Weakness  COMFORTDELGRO CORPORATION LTD C52.SI 

ComfortDelGro (CD SP) - Early Signs of Taxi Weakness


Maintain HOLD; SGD2.80 TP unchanged

  • 1Q16 was inline with our expectation. 
  • Despite our forecast for stronger earnings in the year ahead, we remain cautious on the stock due to the structural threats to its taxi business (36% of EBIT). Competition from new taxi entrants has made it more challenging to get new drivers and we believe its hire-out rate may eventually be hit. 
  • We believe a stronger response is needed to better position the company for the future. 
  • Maintain HOLD and SGD2.80 TP, based on 17x FY16 EPS, 1 SD above historical average to reflect positives from change in bus model.


1Q16 inline; Benefits from lower oil

  • 1Q16 net income of SGD73.4m was in line at 21% of our full-year estimate. 
  • Weaker profits from the vehicle inspection segment were offset by better performance across all other business units. The company is benefiting from the cheaper oil price due to its low level of hedging. 
  • While the company continues to look out for M&A opportunities, there remains a mismatch in price expectations with vendors so it will be careful not to overpay for acquisitions.


Slow traffic build up at DTL may delay breakeven

  • Current ridership of 206k per day at Downtown Line (DTL) was slightly below the company’s expectation. Hence, management now guides that its earlier target of breakeven in 3Q16 is unlikely to materialise.


No queue to rent a new taxi now

  • Management guides that the taxi hire-out rate remains close to 100%. However, it is more challenging to get new drivers and there is almost no queue to rent a new taxi now. It may slow its fleet expansion plans to maintain utilisation. 
  • Hence, while taxi profits remain stable, we remain cautious on its medium term outlook for the following reasons: 
    1. the declining number of taxi licences issued by LTA could eventually lead to lower hire-out rates for its taxis; 
    2. the number of taxi bookings for CDG fell for the first time in six years by 4.2% YoY to 34.1m in 2015. Although there was a pick-up in 1Q16, we think headwinds remain; 
    3. the number of daily trips made by taxi drivers is on the decline; and 
    4. updated tracking data for the private-hire car market suggests there has been a significant pick-up in new drivers in recent months.


Swing Factors 


Upside


  • Possible windfall from sale of bus assets to government. 
  • Successful bids for new rail lines in Singapore.
  • Value-enhancing acquisitions of overseas business.

Downside


  • Declines in taxi utilisation or rental rates. 
  • Overpaying for acquisitions.
  • Higher labour & energy costs.





Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-05-13
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.80 Same 2.80


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