ComfortDelGro Corp Ltd - Phillip Securities 2017-12-18: Earnings Bottom, Dividend Level Sustainable

 ComfortDelGro Corp Ltd - Phillip Securities 2017-12-18: Earnings Bottom, Dividend Level Sustainable COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro Corp Ltd - Earnings Bottom, Dividend Level Sustainable

  • Earnings to bottom in FY17; from three main factors of 
    1. Recognition of higher bus revenue, 
    2. Narrowing of DTL losses and 
    3. Strategic alliance with Uber, driving FY18 earnings higher.
  • Dividend is sustainable, underpinned by strong balance sheet and positive cash flow.
  • Maintain BUY; lower target price of $2.63 (previously $2.69).



Background 

  • ComfortDelGro Corp Ltd (CD) is a global multi-modal land transport operator. Its major business segments include Public transport services, Taxi, Automotive engineering and Inspection and testing. 
  • CD operates across seven countries. Its 75%-owned listed subsidiary, SBS Transit Ltd, operates Public transport services in Singapore of Rail and Buses. Its 67%- owned listed subsidiary, VICOM Ltd, provides inspection and testing services.


Investment Merits / Outlook


1. Earnings bottom in FY17, higher earnings in FY18 driven by Public Transport Services segment. 

  • This is from recognition of higher bus revenue from quality incentives for services performed in 2017 under the new government contracting model, commencement of Seletar bus package (assumed 1Q 2018) and narrowing of Downtown Line (DTL) losses with the commencement of Stage 3 on 21 October 2017.

2. Strategic alliance with Uber through LCR partially offsetting decline in Taxi business.

  • ComfortDelGro and Uber Technologies (Uber) recently made a joint announcement on the intention to form a joint venture. CD is to take a 51% stake in Lion City Holdings Pte Ltd., which in turn owns 100% of Lion City Rental Pte Ltd (LCR)
  • The most immediate positive to come out from this is that LCR is a profitable business. However, vehicle rental is the asset-heavy aspect of the private hire vehicle (PHV) business model. This is in contrast to the asset-light, albeit currently loss-making app-based platform. 

3. Dividend level is sustainable. 

  • ComfortDelGro has a dividend policy of paying at least 50% payout ratio.
  • ComfortDelGro has paid out an increasing trend from 54% in FY12 to 70% in FY16 over the most recent five years. 1H FY17 interim dividend was 4.35 cents, higher than 1H FY16's 4.25 cents. 
  • We believe that absolute dividend is sustainable as supported by a strong balance sheet that is in a net cash position (cash: S$538.1 mn, total debt: S$350.1 mn) and positive cash flow. Estimated FY17e full-year dividend of 10.30 cents gives ~5.4% yield based on current price.


Recommendation 

  • Maintain BUY with lower DCF-derived target price of $2.63 (previously $2.69). 
  • Our forecast does not include the impact of the CD/Uber strategic alliance.









Richard Leow CFA Phillip Securities | http://www.poems.com.sg/ 2017-12-18
Phillip Securities SGX Stock Analyst Report BUY Maintain BUY 2.630 Down 2.690



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