ComfortDelGro Corporation - RHB Invest 2017-05-12: Singapore Public Transport To Support Growth

COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro Corporation - Singapore Public Transport To Support Growth

SBS Transit reported 1Q17 revenue of SGD283.4m (+7.6% YoY) and EBIT of SGD13m (+18.1% YoY).
We expect Singapore’s public transport to account for a greater proportion of ComfortDelGro’s (CD) profit during 2017-2019. SBS Transit’s contribution to CD’s EBIT increased to 26% in 4Q16, from 13% in 1Q15.

We see strong revenue visibility from Singapore’s bus business via the government contracting model (GCM), and improving rail revenue from improved ridership amidst Downtown Line 3’s opening later this year – which would support earnings growth for CD.
We expect the company’s taxi revenue to remain unchanged over the forecast period.
Maintain BUY, with a SGD3.00 TP.

SBS Transit attributed the 9.2% growth in its public transport business revenue mainly to the contribution from bus services, with the transition to the bus GCM and higher ridership numbers from rail services.
The 3.9% YoY growth in the North East Line’s ridership and 19% YoY growth in the Downtown Line’s ridership offset the lower average rail fare that stemmed from the fare reduction that took effect on 30 Dec 2016.

We had earlier estimated the improvement in EBIT margin for Singapore’s bus operations under the GCM, which was implemented in Sep 2016.
While it is difficult to decipher the magnitude of improvement in CD’s bus margins under the GCM – since SBS Transit has stopped reporting the earnings split between bus and rail businesses from 4Q16 – its overall EBIT margin increased QoQ for the second straight quarter in 1Q17.
While improved rail ridership may have played a role as well, we maintain that much of the improvement should have come from the transition of Singapore’s bus operations to the GCM.

Shekhar Jaiswal RHB Invest | http://www.rhbinvest.com.sg/ 2017-05-12

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