ComfortDelGro (CD SP) - Maybank Kim Eng 2018-01-11: NDR Highlights ~ A Better Year Ahead

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COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro (CD SP) - NDR Highlights ~ A Better Year Ahead

Uber will be positive; better rail, overseas expected 

• We hosted a NDR for ComfortDelGro in Malaysia. Key takeaways included:
  1. Uber tie-up should be earnings accretive, as Uber’s car rental business is not loss-making on a core level;
  2. revenue synergies, including vehicle maintenance and inspection from the tie-up could lift earnings; and
  3. better prospects for the rail segment and overseas businesses in 2018.
• Earnings should improve in 2018 after a lacklustre 2017 that resulted from a declining Taxi business and greater losses in the rail segment to support upfront costs for DTL3. 
• Maintain BUY and DCF-based TP of SGD2.40 (implies 16x FY18E EPS, in line with LT mean).

Uber tie-up could benefit Comfort on several fronts 

• Potential impact from Uber tie-up was the most discussed topic, as this is ComfortDelGro’s first NDR since the tie-up announcement in Dec 2017. 
• Aside from earnings accretion from the acquisition of Uber’s car rental business, ComfortDelGro could also reap other revenue synergies, including vehicle maintenance, and the inspection and selling of fuel. 
• In addition, the enlarged platform will enable ComfortDelGro to offer more choices to its drivers and customers. For instance, Uber’s booking platform could offer more booking jobs for ComfortDelGro’s drivers and they could opt to drive private hire vehicles. For consumers on Uber’s platform, they can have access to more vehicles. There is also potential for tie-ups with Uber beyond Singapore.

Downtown Line 3 (DTL3) should narrow losses for rail segment 

• The earnings drag from DTL3 should narrow significantly in 2018, as revenue contributions have started since its opening in Oct 2017. 
• Based on our estimate, rail EBIT loss could narrow from SGD25m in FY17 to SGD5m in FY18, which should lift earnings notably. Daily ridership for the DTL in 2017 exceeded 400k and is not too far from the target of 500k.

More overseas opportunities in UK and Australia 

• Expansion of overseas businesses is also another priority in FY18. 
  1. For the UK, ComfortDelGro could grow its business by tendering for routes outside of London. 
  2. For Australia, it could acquire family-owned bus businesses that are synergistic to its existing operations. There are also more organic opportunities as Australia is still in the midst of privatising its public transport system.

Swing Factors

Upside

• Higher-than-expected bus profitability.
• Successful bids for new rail lines in Singapore.
• Value-enhancing acquisitions of overseas business.

Downside

• Decline in taxi utilisation or rental rates.
• Overpaying for acquisitions.
• Higher labour and energy costs.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-01-11

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 2.400 Same 2.400