ComfortDelGro - CIMB Research 2017-02-12: Higher dividend payout was positive surprise

COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - Higher dividend payout was positive surprise

FY16 revenue and net profit were spot on with our forecasts; Net profit rose 5% yoy.
70% dividend payout was a positive surprise, translating into FY16 yield of 4.1%,
Higher operating profit from Singapore bus & rail, automotive engineering and taxi partly offset by lower profit from overseas bus and inspection & testing services.
Taxi idle rate was a healthy 1.4% in FY16. Management has introduced various taxi renting schemes to mitigate the risk of losing drivers to competitors.

We expect stable group earnings outlook for FY17F; Maintain Add for decent yield.

FY16 revenue and net profit were spot on with our forecasts. Net profit rose 5% yoy to S$317m in FY16 due to higher operating profit for:
1. Singapore bus and rail,
2. automotive engineering, and
3. taxi.
This was partly offset by lower contribution from:
1. overseas bus due to adverse FX translation for UK bus, and
2. inspection & testing services due to lower business volume in Singapore.

The lift in dividend payout to 70% in FY16 (FY15: 64%) was a positive surprise to us (our forecast: 66%). As a result, FY16 DPS rose to 10.3 Scts (FY15: 9 Scts), translating into a decent dividend yield of 4.1% based on the current price.
We expect ComfortDelGro to maintain the 70% dividend payout in FY17-18F, in view of the anticipated improvement in cash flow post-Singapore bus reform and the group’s strong balance sheet (S$434m net cash at end-FY16).

Operating profit of SBS Transit surged 66% yoy to S$41.8m in FY16 (FY15: S$25.2m) as:
1. Singapore bus benefited from lower diesel cost and the four months of operations under the bus contracting model (BCM, effective Sep 16), and
2. the Downtown Line (DTL) was less a drag for rail in FY16 with stage II operational since Dec 15.
We are upbeat on SBS’s profit outlook for FY17-18F, as we anticipate full-year benefits from BCM and the turnaround of the DTL upon stage III starting operations in Sep 17.

Operating profit of overseas bus segment fell 10.5% yoy to S$136.5m in FY16 (FY15: S$152.5m) mainly due to the adverse FX translation on the group’s UK bus profits from the weaker £.
We note that the underlying business remained upbeat. Although the UK bus segment is likely to continue seeing subdued profit due to weak £, we are optimistic and forecast overall low-single-digit net profit growth for group overseas bus in FY17F, driven by organic business volume growth and recently-announced M&A in Australia.

The 1.1%/2.2% yoy growth in group FY16 taxi revenue/operating profit is respectable to us, considering the competitive taxi landscape (group average taxi idle rate was a healthy 1.4% in FY16 vs. industry average of 5-6%).
Management is more cautious on taxi outlook for FY17F and has rolled out more flexible taxi-renting schemes (tailored for drivers with different driving patterns) to mitigate the risk of losing drivers to competitors.

We forecast overall stable group earnings outlook for FY17F as we expect the positives from the group’s bus and rail operations to trump possible weakness in its taxi business.
We maintain our Add call on ComfortDelGro for its decent yield (FY17-19F: 4.5-4.8%).
More overseas M&As are a key re-rating catalyst. Stiffer taxi competition is a key risk.

Roy CHEN CFA CIMB Research | William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-02-12

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.910 Same 2.910