ComfortDelGro - Maybank Kim Eng 2016-08-14: Scope for more disappointment

ComfortDelGro (CD SP) - Maybank Kim Eng 2016-08-14: Scope for more disappointment COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro (CD SP) - Scope for more disappointment

Maintain HOLD; TP lowered on EPS cuts 

  • 2Q16 missed on lower than expected rail and bus earnings. 
  • We cut FY16- 18 EPS by 10-15% to incorporate weaker GBP and lower rail & bus profits.
  • We also revise our balance sheet forecasts to reverse our bus asset sales assumptions. 
  • Operating metrics for the taxi industry revealed a weakening performance and we believe the growing threats of new entrants could impact earnings by 2017. 
  • We cut our TP by 6% to SGD2.63 as we roll forward to 17x FY17 EPS, 1SD above historical average to reflect positives from change in bus model. Maintain HOLD on limited downside. 
  • Nonetheless, we believe consensus expectations are too high.

2Q16 missed on rail and bus 2Q16 missed on lower than expected rail and bus earnings. 

  • 1H16 formed just 44.8% of our FY16E. The pick-up in rail earnings was smaller than expected on start-up losses for Downtown Line. Furthermore, the sharp fall in profit margins for SMRT’s rail business post-transition to NRFF is a negative read-through to NEL’s future profitability. 
  • We assume a full transition for its NEL operations in 2018 and cut our rail margin assumptions to 7% from 15%. As the capex obligation relief for NEL is probably smaller than SMRT (MRT SP, ACCEPT THE OFFER) due to lower depreciated value of its assets, we believe it should transit to a higher margin than SMRT’s 5%. 
  • We also fine tune our Singapore bus forecast to incorporate advertising income into our blended margin assumption of 10% and reverse our bus asset sales assumptions.

Fall in GBP post-Brexit weighs on 20% of earnings 

  • We further cut our earnings to build in lower income from its UK/Ireland operations, which accounts for 25% of sales and 21% of EBIT. This reflects the sharp fall in the GBP post-Brexit in June. 
  • Our revisions assume GBPSGD of 1.80, which is a 14% decline from 2015 average of 2.10.

Operating metrics for taxi showing weakness 

  • We believe the growing presence of private hire-cars has led to weakening performance for the taxi industry. Demand to rent taxis have fallen as evidenced by the decline in the number of taxi licences issued.
  • Number of daily trips made by taxi drivers has also declined as commuters adopt new platforms. We believe CDG will need to respond in a stronger way to the evolving market. Reiterate HOLD.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-08-14
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.63 Down 2.800