ComfortDelGro Corp Ltd - Phillip Securities 2016-06-27: Brexit concerns overblown

ComfortDelGro Corp Ltd - Phillip Securities 2016-06-27: Brexit concerns overblown COMFORTDELGRO CORPORATION LTD C52.SI 

ComfortDelGro Corp Ltd - Brexit concerns overblown

  • Limited exposure to UK/Ireland; contributing less than 20% of Group EBIT.
  • Even a further 10% decline in GBP would present less than 2% impact to Group EBIT.
  • Brexit concerns on ComfortDelGro are overblown, in our view.
  • Upgrade to "Buy" rating with unchanged target price of S$3.21.



What is the news?

  • Outcome of the Referendum with voters in the United Kingdom voting to leave the European Union. This sent the GBP to tumble against SGD to a low of 1.8020 and finally settle at 1.8552 last Friday. The exchange rate was 2.1085 exactly a year ago on 24 June 2015.
  • We review the impact on ComfortDelGro, which has exposure to Bus and Taxi Businesses in the UK and Ireland.


How do we view this?


Limited exposure to UK/Ireland; contributing less than 20% to Group EBIT 

  • UK/Ireland contributed 20.5% to Group EBIT in FY2015, and more recently, 16.5% in 1Q16.

Even a further 10% decline in GBP would present less than 2% impact to Group EBIT 

  • We believe that EBIT contribution from UK/Ireland for the remainder of FY16 would be in line with 1Q16's 16.5%, rather than FY15's 20.5%. Noting that GBP had already depreciated c.5% against SGD over the past year (between 2Q15 and 2Q16), even on the basis of a conservative scenario of a further decline of GBP by 10%, it would result in c.1.7% impact to Group EBIT, by our estimate.


Upgrade to "Buy" rating with unchanged target price of S$3.21

  • While revenue denominated in GBP would be negatively impacted, the same effect would positively apply to costs denominated in GBP. As such, we looked at the contribution to Group EBIT from UK/Ireland.
  • We have estimated that even under the scenario of a further 10% depreciation of GBP relative to SGD, Group EBIT would have a less than 2% negative impact; thus not exceeding our materiality threshold.




Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2016-06-27
Phillip Securities SGX Stock Analyst Report BUY Upgrade ACCUMULATE 3.21 Same 3.21


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