ComfortDelGro - OCBC Investment 2017-08-14: Look Beyond FY17 For A Smoother Journey

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COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - Look Beyond FY17 For A Smoother Journey

• Core 1H17 within expectations.
• Taxi business facing intense competition.
• DTL3 to help mitigate taxi weakness.

Core 1H17 formed 50% of FY17 forecast 

• ComfortDelGro’s (CDG) 2Q17 revenue fell 3.4% YoY to S$987.2m, mainly attributable to:
  1. a negative foreign currency translation effect (- S$18.2m) largely due to weaker GBP, and
  2. underlying business (-S$16.9m) due to weaker taxi (-10.7%) segment on lower rental income in Singapore, 
  but partially offset by Public Transport Services (+1.3%) segment. 
• 2Q17 operating expenses fell 2.7% YoY to S$875.3m, mainly due to a favourable S$16.8m foreign currency translation effect, as well as decrease in underlying operating costs such as contract services, road tax and taxi drivers’ benefits.

Consequently, 2Q17 PATMI declined 6.8% YoY to S$79.4m. 

• For 1H17, revenue decreased 2.9% YoY to S$1.96b, impacted by unfavourable currency effect, while operating expenses only declined 2.2% to S$1.75b. 
• However, stripping out the special dividend CDG received in 1Q17 from Cabcharge Australia, 1H17 core PATMI fell 4.9% YoY to S$150.8m, which formed 49.8% of our FY17 forecasts, in-line with our expectations.

Expect taxi to weaken further but DTL3 to help 

• For FY17, CDG expects revenue for taxi business to decrease while public transport services revenue to be higher. 
• We expect the aggressive expansion of private hire car services to continue to impact taxi business, resulting in shrinking taxi fleet size (i.e. lower taxi rental revenue), even beyond FY17. 
• CDG’s taxi fleet idle rate has also increased from ~3.5% in 1Q17 to 5.0% in 2Q17, while taxi bookings fell 20% YoY in 2Q17. Hence, we now forecast for taxi revenue to fall 15% and 8% in FY17 and FY18, respectively.
• However, we believe outlook in FY18 and beyond will be supported by:
  1. significant revenue growth from rail with the opening of DTL3 on 21 Oct 17, which serves more populated areas than the first two phases, and
  2. continued growth in Singapore bus as well as UK bus where certain routes will only commence in 2H17.

Maintain BUY with lower FV of S$2.70 

• As we expect taxi business to weaken further and continue to forecast for DTL to breakeven only from FY19, we cut both our FY17/18F PATMI by 5% and lower our FV from S$2.88 to S$2.70.
• Maintain BUY, as we believe the recent fall in ComfortDelgro's share price has been overdone. 

Eugene Chua OCBC Investment | http://www.ocbcresearch.com/ 2017-08-14

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 2.70 Down 2.880