ComfortDelGro Corp Ltd - Phillip Securities 2016-11-14: Bottom line growth maintained

ComfortDelGro Corp Ltd - Phillip Securities 2016-11-14: Bottom line growth maintained COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro Corp Ltd - Bottom line growth maintained

  • S$1.015bn 3Q FY16 revenue in line with our forecast of S$1.043bn.
  • S$87.3mn 3Q FY16 PATMI exceeded our forecast of S$78.7mn by 10.9%.
  • S$3.033bn 9M FY16 revenue met 73.7% of our FY16 forecast of S$4.117bn.
  • S$245.9mn 9M FY16 PATMI met 81.9% our FY16 forecast of S$300.4mn.
  • Achieved bottom line growth in spite of currency headwinds.

Bus: SBS Transit (SBST) is stable; some upcoming contract renewals in UK 

  • SBST's Bus segment's quarter-on-quarter (qoq) profit was 2% lower due to loss of the Bulim Package. Operating margin held steady between 2Q FY16 and 3Q FY16 at 4.6% and 4.5% respectively. We continue to expect profit to be maintained, as the Bus Contracting Model (BCM) has commenced from 1 September.
  • An effect of the transition to the government BCM was the increase in trade receivables during the quarter, due to timing difference of fee payments. There was also a timing difference of fee payments in UK as well. Going forward, we are expecting 20 days in receivables instead of the 5-year historical average of 12 days.
  • Management shared that there will be some contracts up for renewal in the UK. While rates are expected to be lower, it will be offset by higher service frequency, thereby keeping revenue comparable.

Taxi: Some heat being taken off 

  • There was no erosion in the Singapore taxi hire-out rate, with it remaining at 99%. The ongoing replacement of the Sonata fleet to i40 is expected to lift revenue through the higher rental of new taxis. Timing of fleet renewal and fleet expansion will be guided by Certificate of Entitlement (COE) prices and competition from private car hire services.
  • Management shared that the operating landscape in China is shaping better, as authorities in major cities are tightening rules for private car hire services and favouring incumbent taxi operators.

Rail: 4.2% fare reduction – so what? 

  • Do not miss the forest for the trees Average daily ridership on Downtown Line (DTL) grew 199% yoy and 10% qoq to 234,000 passenger trips, with the commencement of DTL2 in December 2015. 
  • While DTL is still unprofitable, we are upbeat on the Rail segment as it has a visible pathway to revenue growth that will lead to profitability. DTL3 is scheduled to open in 2017 and the Land Transport Authority (LTA) projects daily ridership of 500,000 – more than double of current ridership – when the full DTL is operational. 
  • We are not unduly concerned over revenue loss from the recent 4.2% fare reduction announced, on account that ridership growth from the opening of DTL3 will outstrip it. Moreover, the fare reduction is in line with lower energy costs.

Upgraded to "Buy" with new lower target price of S$2.92 (previous S$3.19) 

  • We have made revisions to several of our forecasts. New lower target price was effected by changes in revenue, cost structure and cash flow assumptions. Our target price represents an implied 19.7x FY16e forward P/E multiple (historical average: 20.6x).
  • ComfortDelGro had re-rated after the government BCM was announced on 21 May 2014.
  • The re-rating was due to the positive structural change in which the license to operate bus services in Singapore will be awarded; and the revenue risk would be taken on by the government. 
  • Average P/E multiple after the announcement is 20.6x. The current P/E multiple of 16.9x is lower than the -2 standard deviation multiple of 17.5x.

Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2016-11-14
Phillip Securities SGX Stock Analyst Report BUY Upgrade ACCUMULATE 2.92 Down 3.190