ComfortDelGro (CD SP) - Maybank Kim Eng 2018-02-14: Taxi Weakness Continued; Await Uber Catalyst

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COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro (CD SP) - Taxi Weakness Continued; Await Uber Catalyst

Results in line, taxi was the main drag on earnings 

• FY17 results were in line, as earnings and dividends met 100% of our FY17E. Earnings fell 5% y-o-y with the taxi segment being the main drag and FY17 EBIT down 19% y-o-y due to a 15% fleet size reduction in response to competition. 
• On the other hand, the public transport segment remains stable. Recent adoption of UberFlash and potential acquisition of Lion City Rental (LCR), pending regulatory approval could offset the taxi weakness. 
• Maintain BUY with DCF-based Target Price reduced 2% to SGD2.35 (WACC 9%) after we cut FY18-19E EPS by 2-3% to account for longer breakeven period in the rail segment and weakness in automotive engineering services.

Addressing the slowdown in Taxi segment 

• The decline in the taxi segment has been mainly due to competition from private hire vehicles. As a result, Comfort reduced its fleet by 15% in FY17 to manage its idle rate. 
• On the bright side, Since the adoption of UberFlash in Jan 2018, the decline in the taxi segment has been reduced. Also, drivers who use the new service have been able to raise their income. And the potential acquisition of LCR could also help. In addition, we believe smaller taxi companies could be facing even greater pressure and might throw in the towel. As the taxi supply falls, this benefits Comfort.

Public transport segment should improve from rail 

• Losses for the Downtown Line 3 (DTL3) should narrow starting in 1Q18 as ridership increases, although the fare hike, which took effect in Jan 2018 has delayed the breakeven period. Average daily ridership has continued to improve, from 405k when DTL3 first started in Oct 2017 to 450k currently.

More accretive acquisitions in the pipeline 

• Comfort has announced three small acquisitions with an aggregate value of SGD63m since the beginning of 2018. We believe these will help to partially mitigate the weakness in its taxi business and enable Comfort to tap more growth opportunities overseas. 
• Management continues to explore similar acquisition targets and is willing to take on gearing up to 40% from net cash position currently if good opportunities arise.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2018-02-14

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 2.35 Down 2.400