ComfortDelGro Corporation - RHB Invest 2017-08-14: Moderating Organic Growth Expectation

ComfortDelGro Corporation - RHB Invest 2017-08-14: Moderating Organic Growth Expectation COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro Corporation - Moderating Organic Growth Expectation

  • ComfortDelGro (CD)’s 1H17 revenue and EBIT were slightly below estimates, as taxi reported lower-than-expected earnings. However, net profit was in line, aided by an one off investment income in 1Q17 and a low tax rate. 
  • Singapore taxi fleet size and hire-out rate continued to decline QoQ, while the public transport unit saw a strong EBIT growth. 
  • We reduce the taxi fleet size and hire out rate estimates for 2017-2019 and lower the profit by 7-11%. While we expect dividends to rise, we have lowered the payout ratio for 2018-2019F. 
  • Maintain BUY, with a lower SGD2.60 TP (previously SGD3.00, 13% upside).

Singapore taxi continues to witness a sequential decline. 

  • Amidst continuing elevated competition from Uber and Grab, ComfortDelGro’S (CD) taxi revenue fell SGD36m YoY in 2Q17 (down 11%). CD’s Singapore taxi fleet shrunk to 15,556 units as at end of June, from 16,821 as at end 2016 (down 7.5%). The idle rate increased to 5.0% from 3.5% in 1Q17. 
  • While the new regulations for private hire car drivers and vehicles implemented from 1 Jul 2017 have helped in improving the hire out rate, we now expect the 2Q17 idle rate to sustain for the rest of 2017. 
  • Also, we now expect a similar idle rate to sustain for the rest of the forecast period.

Rail should recover in 2018F on the back of DTL3. 

  • Rail business continued to witness an improvement in ridership. Downtown Line (DTL), North East Line (NEL) and Light Rail Transit (LRT)’s ridership grew by 14.2%, 1.4% and 6.3% YoY to 242k, 566k and 119k, respectively. However, the rail business continued to report a loss as preparation for commencement of operations at DTL3 led to an increase in costs. 
  • While CD remains confident of DTL3’s opening later this year and is optimistic of achieving strong ridership growth, it only expects DTL to breakeven in 2H18F. 
  • Management remains cognizant of the upcoming fare review, which may lead to lower average fares and hence prolong the breakeven time period.

Guidance for organic growth from bus operations only. 

  • Similar to an earlier guidance, CD only expects its Singapore and Australia bus businesses to witness an increase in revenue, while the rest of its businesses are expected to witness a decline in revenue. CD plans to participate in Australia’s New South Wels (NSW) bus tenders, and is also seeking further bus opportunities in the UK, outside London. 
  • Management indicated that Thomson-East Coast Line (TEL) tender announcement, would happen soon.

Maintain BUY with a lower SGD2.60 TP. 

  • We continue to like CD for its strong free cash flow (FCF) generation (7.0% yield), the ability to undertake inorganic growth aided by a net cash balance sheet, and its expected gradual rise in dividend payout translating into 4.4-5.4% yields. 
  • Amidst expectations of a further decline in Singapore taxi fleet size and elevated idle rate for 2017- 2019F, we lower the profit by 7-11% and reduce the DCF-derived TP to SGD2.60 (from SGD3.00). 
  • We maintain that winning the tender for the TEL would be positive for CD’s earnings from 2019F onwards.

Shekhar Jaiswal RHB Invest | http://www.rhbinvest.com.sg/ 2017-08-14
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 2.60 Down 3.000