ComfortDelGro - CIMB Research 2017-08-12: 2Q17 Weak Taxi And Overseas Bus

ComfortDelGro - CIMB Research 2017-08-12: 2Q17 Weak Taxi And Overseas Bus COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - 2Q17 Weak Taxi And Overseas Bus

  • ComfortDelgro's 1H17 core net profit was 47%/53% of our/consensus FY17F estimates, but we deem this a miss as 2H17F could be weaker on soft public transport and taxi earnings.
  • Public transport segment continued to be hampered by adverse FX translations. Taxi idle rate rose to 5%. Rail could also take time to break even.
  • Higher interim dividend of 4.35 Scts announced in 2Q17; but an increase in FY17F dividend payout is unlikely, according to management.
  • Cut FY17-19F core EPS by 7.0-7.6% to reflect lower taxi and overseas bus profits ahead.
  • We have switched analyst coverage on ComfortDelGro. With no near-term catalysts in the medium-term, we maintain our Hold call with a lower TP of S$2.46 (from S$2.78).

2Q17 net profit deemed below expectations 

  • We deem 2Q17 group core net profit of S$79.4m (-6.8% yoy/+11.4% qoq) a miss as yoy growth in operating profits for Public Transport and Taxi divisions continues to be soft.
  • 2Q17/1H17 public transport division’s operating profit was affected by the overseas bus division, while 2Q17/1H17 taxi division’s operating profit fell 17.4%/15.0% on heightened competition. Management’s negative outlook on revenue for its key segments implies a softer 2H17, in our view.

Taxi profit continues to shrink yoy 

  • 1H17 taxi operating profit shrank on reduced fleet size (estimated average of 15.9k in 1H17 vs. c.17k in 1H16) and increased taxi idling (c.5.0% in 2Q17). 
  • While it guided for a slight drop in the number of private car drivers post the implementation of the Private Hire Car Driver Vocational Licence (PVDL) in Jul 17, competition from Uber and Grab remains stiff, and there is a likelihood such players could entice CD’s taxi drivers with benefits, leading to continual pressure on CD’s taxi driver count moving ahead.

Singapore rail may take longer to break even 

  • Singapore public transport 2Q17/1H17 operating profit rose 68.0%/41.3% yoy/qoq to S$16.2m/S$29.2m (vs. 2Q16/1H16: S$9.6m/S$20.2m) on better margins of the Singapore bus business under the new contracting model (effective Sep 16). But rail operations continue to be loss-making ahead of the start of the Downtown Line (DTL) 3 by 21 Oct. 
  • Management said that rail margins may only significantly turn around in 2H18 as there could be another fare review this year which could offset the uplift in ridership.

Overseas bus impacted by loss of routes and FX translation 

  • The underlying business of the group’s overseas bus operation was impacted by the temporary loss of service routes at Metroline in 2Q17, which coupled with unfavourable currency translation from the weaker GBP, resulted in a 2Q17/1H17 operating profit fall of 17.3%/14.3%. 
  • This trumped the increase in Australian revenue, which we believe was lifted from the additional 49% stake in ComfortDelGro Cabcharge (completed in Feb 17).

FY17-19F core EPS cut by 7.0-7.6% 

  • We cut our FY17-19F core EPS largely on lower taxi profits due to the continued competition from Uber and Grab. 
  • We also lower our public transport projections on account of the weaker GBP forex rate and lower rail margins, in line with management’s guidance of a delayed breakeven.

Maintain Hold 

  • In line with the EPS cuts, we lower our FY17F DCF-based target price to S$2.46 (WACC: 7.0%). 
  • With the lack of earnings growth, we believe the share price will remain flattish in the near term. 
  • Upside risks include possible earnings-accretive M&As, and higher dividends. 
  • Downside risks include further deterioration in taxi and public transport profits.

Cezzane SEE CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2017-08-12
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 2.46 Down 2.780