ComfortDelGro (CD SP) - Maybank Kim Eng 2017-08-14: Discomfort In 2017

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COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro (CD SP) - Discomfort In 2017

Results missed on weakness across most segments 

• 1H17 core earnings missed, at 45%/47% of ours/consensus’s forecast.
• 2Q17 core earnings fell 7% YoY and EBIT declined for all key segments except for public transport, which reported flat EBIT growth. 
• We cut our FY17-19E EPS by 7-9% to factor in a deeper decline in taxi EBIT, from 8% to 18% in FY17E and weaker EBIT for the other segments. We peg our TP to 16x (based on long-term mean) FY17E EPS, down from 17x reversing the small premium previously attributed to account for the more challenging operating outlook. 
• Our revised TP is 15% lower at SGD2.25.

Further decline for taxis as competition intensifies 

• Taxi’s EBIT in 2Q17 fell 17% YoY, escalating from 1Q17’s 12% decline due to competition from the private-hire vehicles remained intense as they made attractive offers to poach drivers. All the key metrics continued to deteriorate:
  1. fleet size reduced by 6-7%;
  2. idle rate rose to 5% from 3% in 1Q17; and
  3. taxi bookings declined 15-20% YoY. 
• Management expects this segment to remain challenging.

Bus and rail segments’ catalysts to start in 2018 

• Additional earnings for the new Bus Contracting Model have been eroded by the weaker UK bus business and higher start-up costs of the rail business.The public transport service is the only positive segment. But in the near term, earnings could be eroded by the weakness in the UK bus business due to the weaker GBP and increased start-up costs for DTL3, which is scheduled to open on 21 Oct 2017. 
• Only a few growth catalysts will materialise in the medium to longer term:
  1. commencement of the Seletar Bus Package in 1Q18;
  2. DTL3 should help the rail segment to break even in 2H18; and
  3. tender results for the Thomson East Coast Line could be announced in Sep-17, but the contract won’t start until 2019 and more financial details will need to be negotiated.

Swing Factors

Upside

• Better-than-expected bus profitability.
• Successful bids for new rail lines in Singapore.
• Value-enhancing acquisitions of overseas business.

Downside

• Decline in taxi utilisation or rental rates.
• Overpaying for acquisitions.
• Higher labour and energy costs.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-08-14

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.25 Down 2.640