ComfortDelGro - CIMB Research 2017-11-10: 3Q17 In Line; Awaiting Details Of Uber Deal

ComfortDelGro - CIMB Research 2017-11-10: 3Q17 In Line; Awaiting Details Of Uber Deal COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - 3Q17 In Line; Awaiting Details Of Uber Deal

  • Although ComfortDelGro 3Q17’s net profit (S$80.1m) was above our estimate (S$71.5m), we deem it within expectations as 3Q is a seasonally-strong quarter, and 4Q will be weaker. 9M17 net profit accounted for 78.6%/76% of our/consensus’ FY17F numbers (S$293.5/S$303.7m).
  • The decision on an Uber tie-up is guided to be soon; and could enhance CD’s greater reach in the private-hire market.
  • The current valuation implies FY17-19F P/E of 14.6-14.9x, below its long-term average of 15.9x. But lack of any significant catalysts cap share-price upside, for now.
  • Maintain Hold call with a DCF-based TP of S$2.15.

3Q17 net profit continues to shrink 

  • 3Q17 group core net profit shrank 8.2% yoy to S$80.1m on continually weak taxi and automotive divisions’ earnings; despite a marginally strengthened public transport segment (due to lower yoy EBIT losses in the overseas bus segment, given the relatively stronger GBP/SGD exchange). Overall, 9M17 net profit shrank 6.1% yoy.

Taxi still weak; fleet likely to narrow further 

  • 3Q/9M17 taxi operating profit shrank 20.7%/17.1% on lower fleet size (est. avg. of 15.7k in 9M17 vs. 17k in 9M16) and increased taxi idling (c.5.4% in 3Q17). 
  • Management guided that it will scrap idle cars in 4Q17 which could enhance the utilisation of its taxi fleet. However, beyond taking the last batch of hybrid cars in 4Q17 (committed to in Jan 17), there will be no further capex given the current competitive market. This is within our expectations of an even potentially lower fleet in FY18F.

Uber tie-up decision soon 

  • Management has guided that the decision on the Uber tie-up will be completed by the end of this month. 
  • As per our expectations, management said the tie-up could go beyond the exclusive sharing of Uber’s third-party app booking and could lead to a deeper foothold for CD in the private-hire market. 
  • We read this as CD possibly acquiring a part of Uber’s fleet. We believe CD views the tie-up as a means to enhance market share and moderate the playing field within the personal mobility space (ie. taxis and rental market).

Singapore rail taking even longer to break even 

  • Singapore public transport’s 3Q17/9M17 operating profit rose 40.3%/41% to S$14m/S$43.2m (vs. 3Q16/9M16: S$10.0m/S$30.7m) on better margins of the Singapore bus business under the new contracting model (effective Sep 16). However, what surprised us in 3Q17 was the guidance of rail operations’ turnaround which is now set for 1Q19 vs. 2H18 as guided previously, as the ridership switch could take longer, coupled with the impact of the fare discount in end-Dec 17.

Maintain Hold 

  • We maintain our Hold call and FY17F DCF-based target price of S$2.15 (WACC: 7.4%), pending the final details of the Uber deal. 
  • 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/ 2017-11-10
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 2.150 Same 2.150