ComfortDelGro Corp Ltd - Phillip Securities 2016-10-28: Lower energy costs drive fares lower

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COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro Corp Ltd - Lower energy costs drive fares lower

• Fare structure to be simplified.
• 4.2% fare reduction, effective 30 December 2016.
• Remaining -1.5% quantum carried forward to next Fare Review Exercise.
• CD's Bus revenue unaffected; only Rail revenue affected.

What Is The News?

• The Public Transport Council (PTC) on 27 October announced that it had concluded the 2016 Fare Review Exercise. The Council has decided to 
  1. simplify the fare structure, 
  2. grant a 4.2% fare reduction, and 
  3. carry forward the remaining -1.5% fare quantum to the next Fare Review Exercise.

How Do We View This?

CD's domestic public scheduled bus service revenue will not be affected 

• While fare-box revenue collected would be lower, ComfortDelGro Corp (CD) will not be affected. The previous Bus Service Operating Licence had expired on 31 August and public scheduled bus services have transitioned to the Government Contracting Model (GCM).
• CD's exposure to domestic public scheduled bus service is through its 75.1%-owned subsidiary SBS Transit (SBST).

Fare adjustment has marginal impact to Group revenue 

• Our original assumption was a 1% increase in fares. We have adjusted our forecast downwards to incorporate the 4.2% decrease in fares. As such, our FY17e Rail fare-revenue forecast is now 5.2% lower than original; and Rail revenue (inclusive of advertising and rental) is 4.2% lower than original. 
• The impact of the fare adjustment to CD is marginal. Rail (inclusive of advertising and rental) contributed 7.2% of Group FY17e revenue in our original forecast, and now 6.9%. Our revised forecast for Group FY17e revenue is 0.3% lower than the original forecast.

3QFY16 results preview 

• We think that Taxi segment will continue to be muted, and highlight the impact from currency fluctuation.

All eyes on Taxi Business 

• Prospects for CD's Taxi Business continue to be a concern. Last quarter, Management guided that taxi hire-out rate in Singapore is effectively 100% (save for the spares), but the queue for hirers was absent. We would be keen to see how these two indicators performed during the quarter.

Expect a net unfavourable currency translation effect due to GBP and CNY 

• Both GBP and CNY had depreciated relative to SGD. Group revenue would be eroded by the currency effects, but there would be a corresponding positive effect of lower operating cost from favourable currency translation effect. We still expect an overall negative impact.

Maintain "Accumulate" rating with new lower target price of S$3.19 (previous S$3.21) 

• Our target price of S$3.19 represents an implied 22.8x FY16e forward P/E multiple. 
• We have kept our rating unchanged, pending the announcement of 3QFY16 financial results.

Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2016-10-28

Phillip Securities SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 3.19 Down 3.210