ComfortDelGro Corp Ltd - Phillip Securities 2017-08-14: Oversold And Earnings To Bottom This Year

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COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro Corp Ltd - Oversold And Earnings To Bottom This Year

• ComfortDelGro's 2Q revenue in line with our forecast.
• 2Q PATMI exceeded our forecast by 13% on lower than expected operating expenses.
• 1H17 interim dividend of 4.35 cents, higher than 1H16’s 4.25 cents.
• 75%-owned subsidiary, SBST, reported a strong set of results.
• Upgrade to Buy from Accumulate; lower target price of $2.78 (previously $3.02).

The positives 

75%-owned subsidiary, SBST, contributing positively. 

• SBS Transit’s (SBST’s) Public Transport Services segmental 2Q17 EBIT improved to $7.26 mn from $435,000 loss a year ago. The improvement was due to the transition to the Bus Contracting Model (BCM). 
• Consequently, SBST’s 2Q17 NPAT grew 75% YoY to $12.7 mn, thus mitigating impact from foreign currency translation and weaker underlying business for the Group.

Higher interim dividend, mirroring SBST. 

• 3.65 cents interim dividend at SBST is higher compared to the 2.35 cents a year ago. SBST’s payout ratio over 1H17 and 1H16 EPS is comparable, at 49.5% and 47.4% respectively. 
• ComfortDelGro’s payout ratio over 1H17 and 1H16 EPS is 58.7% and 57.8% respectively.

The negatives 

Singapore Taxi business continues to be challenged by private hire vehicles. 

• Comfort and CityCab 2Q17 combined taxi fleet is -3.1% QoQ and -8.9% YoY. 2Q17 idle rate was 5%, compared to the 3.0%-3.5% in 1Q17. Taxi bookings are -20% YoY. 
• We believe Singapore Taxi EBIT-margins are likely to be eroded to single-digit, from historical low teens, and now contributing an estimated 10%-15% of Group EBIT, from historical 20% of Group EBIT.

Higher losses at DTL, dragging down Rail segment. 

• Costs at Downtown Line (DTL) were higher sequentially, in preparation for DTL3 revenue service commencing on 21 October.
• Fixed costs for DTL should be peaking and the higher revenue from ridership should largely flow through to profits despite the higher variable costs (electricity & maintenance). North East Line remains profitable with 1.4% YoY ridership growth.

Outlook 

The outlook is positive. 

• Although immediate-term earnings are weighed down by weaker Singapore Taxi business and foreign currency translation effects, there are several visible developments in the pipeline: 
  1. opening of DTL3 to contribute positively from 4Q17, 
  2. full year impact of BCM in 2017, 
  3. Seletar bus package contribute positively from 1Q18.
• Consequently, we see PATMI bottoming this year. 
• Positive catalyst if ComfortDelGro is awarded the contract to operate the Thomson-East Coast Line.

Upgrade to Buy from Accumulate; lower target price of S$2.78 (previous: S$3.02) 

Made some tweaks to our assumptions. 

• FY17e/FY18e revenue is -0.4%/-0.9% from previous and PATMI is +3.1%/+1.2% from previous. 
• We also have a higher WACC of 7.8% (previously: 7.5%). 
• Our target price represents an implied 20.6x FY17e forward P/E multiple, compared to the Straits Times Index twelve-month forward P/E multiple of 14.7x.

Richard Leow CFTe Phillip Securities | http://www.poems.com.sg/ 2017-08-14

Phillip Securities SGX Stock Analyst Report BUY Upgrade ACCUMULATE 2.78 Down 3.020