ComfortDelGro - OCBC Investment 2017-11-13: 3Q17 Dragged By Taxi Business

ComfortDelGro - OCBC Investment 2017-11-13: 3Q17 Dragged By Taxi Business COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - 3Q17 Dragged By Taxi Business

  • 9M17 core PATMI above expectations.
  • Expect taxi revenue to decline further.
  • 4Q17 to see full quarter of DTL3 revenue.

Core 9M17 formed 83% of our FY17 forecast 

  • ComfortDelGro’s (CDG) 3Q17 revenue fell 2.4% YoY to S$991.4m, mainly attributable to its weaker underlying business (-S$30.1m), driven by softer taxi (-11.2%) segment on lower rental income in Singapore, and automotive engineering services (-18.9%) on lower taxi fleet size but partially offset by Public Transport Services (+4.6%) segment. 
  • 3Q17 operating expenses fell 0.9% YoY to S$879.9m, mainly due to a decrease in underlying operating costs such as contract services, road tax and taxi drivers’ benefits. Consequently, 3Q17 PATMI declined 8.2% YoY to S$80.1m. 
  • For 9M17, revenue decreased 2.7% YoY to S$2.95b, impacted by weaker taxi business, while operating expenses only declined 1.8% to S$2.63b. However, stripping out the special dividend ComfortDelGro received in 1Q17 from Cabcharge Australia, 9M17 core PATMI came in above our expectations even as it fell 6.1% YoY to S$230.9m, and formed 83.0% of our FY17 forecast.

Taxi margins may decrease to stay competitive 

  • Looking ahead, ComfortDelGro expects revenue for taxi business to decrease, with automotive engineering services segment to decline as well on lower taxi fleet and lower diesel volume sold to taxi drivers. That said, public transport services revenue is expected to be higher across Singapore, UK and Australia. 
  • DTL3 is expected to breakeven only in early-FY19 due to the fare cut effective 29 Dec 17. 
  • While taxi idle rate averaged 5.4% in 3Q17, this is expected to decline or remain stable as ComfortDelGro scraps the older taxis within the idle fleet, while taking delivery of the new hybrid taxis. 
  • In our view, given Grab’s aggressive expansion, we believe CDG’s taxi margins will fall in order to stay competitive to keep its idle rate low.

Still in discussion with Uber on strategic alliance 

  • All considered, on above expectations results, we raise our FY17F/18F PATMI forecast by 3.8%/3.5% but lower our EBIT margins assumptions for taxi business and bus business beyond FY18F. Consequently, maintain HOLD as our FV decreases from S$2.12 to S$2.05. 
  • As management guided that the exclusive discussions with Uber on potential strategic alliance will likely conclude this year, we will review our forecasts again pending clarity over the details of the potential partnership.

Eugene Chua OCBC Investment | http://www.ocbcresearch.com/ 2017-11-13
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 2.05 Down 2.120