ComfortDelGro - DBS Research 2016-11-14: Growth despite translation headwinds

COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - Growth despite translation headwinds

3Q16 results in line excluding larger than expected forex translation impact.
Expect better growth in 4Q on recent strength of GBP, AUD against SGD, and bus contract model.
Recent correction puts valuation at below 5-year average; reiterate BUY, S$3.09 TP.

The recent share price weakness further reinforces our recommendation on the counter despite the market’s perceived challenges for the group.
We reiterate our BUY recommendation on ComfortDelgro (CD) as valuations of 16.6x/ 15.3x FY16F/ 17F PE are below its historical 5-year average. With lower capex requirements, we believe there is potential for a higher dividend payout.

CD’s 3Q16 net profit grew 2.5% y-o-y to S$87.3m, even though revenue slipped by 3.1% to S$1.02bn. This was slightly below our expectations of c.6% growth, due to the larger than expected translational effect.
The group’s EBIT margins improved by 22bps to 12.5% in 3Q16 (3Q15: 12.3%) arising largely from lower energy and fuel costs (-24% y-o-y), and materials and consumables (-27%).

While 3Q16 recorded only 2.5% net profit growth, 9M16 earnings increased 5.2% y-o-y to S$246m. We expect 4Q16 to register stronger growth on the back of the weakening SGD against AUD and GBP in recent days. That said, we trimmed our forecasts by 2%/ 4%/ 5% for FY16F/ 17F/ 18F to factor in a larger than expected fare decrease of 4% and 2% in Singapore for 2017/18 (vs our earlier expectations of 1%), coupled with marginally higher cost assumptions.
Despite the weak global outlook, we expect CD to post DPS growth with its lower capex requirements.

Our target price is adjusted to S$3.09, based on average of discounted cash flow (DCF) and price-earnings ratio (PE) valuation methods.

Loss of bus contracts, changes in regulations on operations, and currency swings may impact our forecast

Andy SIM CFA DBS Vickers | http://www.dbsvickers.com/ 2016-11-14

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 3.09 Down 3.170