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

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 results spot on; Net profit rose 5% yoy 

  • 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.

Higher dividend payout was positive surprise 

  • 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).

Singapore bus & rail: strong outlook underpinned by BCM and DTL 

  • 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.

Overseas bus: upbeat underlying business, M&A driving growth 

  • 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.

Taxi: landscape remains competitive; Focus on retaining drivers 

  • 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.

Maintain Add, with unchanged DCF-based target price of S$2.91 

  • 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