ComfortDelGro Corp Ltd - Phillip Securities 2017-05-15: Lifted By Singapore Bus, Boosted By Cabcharge Australia

ComfortDelGro Corp Ltd - Phillip Securities 2017-05-15: Lifted By Singapore Bus, Boosted By Cabcharge Australia COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro Corp Ltd - Lifted By Singapore Bus, Boosted By Cabcharge Australia

  • 1Q revenue missed our forecast by 3.4%; met 24% of consensus full year expectation.
  • 1Q PATMI in line with our forecast; met 25% of consensus full year expectation.
  • PATMI includes S$11.1 million special dividends from Cabcharge Australia.
  • Near-term pain from contraction of Taxi and foreign currency translation.
  • FY18 should be a better year with DTL3 and Seletar Bus package contributing.

Bus: BCM lifted profits for Public Transport Services, offsetting Rail 

  • In our previous report, we stated that FY17 will be an even better year for the Singapore Bus business. The reason is there will be a full year contribution under the new government Bus Contracting Model (BCM), compared to only four months contribution in 2016. 
  • The positive impact of the BCM was evident in ComfortDelGro’s (CDG's) 75%-owned subsidiary SBS Transit's (SBST’s) 1Q FY16 results, which reported 973% higher operating profit for the Public Transport Service segment (which is a mix of Bus and Rail operations).
  • The other positive is that SBST won the competitive tender to operate the Seletar bus package; a contract worth ~$480 million for a five-year period which begins in 1Q 2018.

Taxi: Singapore fleet continue to contract 

  • Overall Taxi fleet in Singapore contracted 2.6% during 2016, due to competition from private-hire car services. Likewise, CDG’s taxi fleet has contracted from ~16,800 at end 4Q FY16 to ~16,000 at end 1Q FY17. Taxi-bookings have also come off 14% y-o-y lower and a "slight drop" q-o-q. 
  • The Automotive Engineering Services segment also reported lower revenue due to lower volume of diesel sold. 
  • Taxi fleet idle rate worsened to 3.0-3.5%, when it was 1.4% for FY16. Idle rate in 4Q FY16 was possibly ~2.5%, by our estimates. 
  • The Group’s gross capital expenditure in taxis was also 42% y-o-y lower, due to slowdown in fleet renewal and is expected to remain at this pace for the rest of the year. 
  • To mitigate, CDG has implemented new schemes such as the flat-fare option for taxi bookings and flexible rental scheme (25CJ initiative).

Rail: Dragged down by DTL, but positives over the horizon 

  • Downtown Line (DTL) remains loss-making, dragging down profits from North East Line (NEL), resulting in overall Rail loss. 
  • DTL Stage 3 (DTL3) is expected to open by end-2017 and runs through the most populated section of the line. The Land Transport Authority (LTA) forecasts average daily ridership of 500,000 - double of the current 245,000 - when the full DTL is opened. 
  • On future new lines, both Rail operators (SBS Transit and SMRT Corp) have submitted their bids for the upcoming Thomson-East Coast Line (TEL); outcome should be made known by the end of this year.

Maintain "Accumulate" rating, higher target price of S$3.02 (previous: S$2.94) 

  • We see near-term pain from contraction of Taxi business and foreign currency translation, but believe PATMI to bottom this year, as DTL3 and Seletar Bus package will contribute in FY18. 
  • Our target price represents an implied 23.4x FY17e forward P/E multiple (historical average: 19.8x). 
  • FY17e forecasted dividend of 10.4 cents implies 3.9% yield.

Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2017-05-15
Phillip Securities SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 3.02 Up 2.940