ComfortDelGro - CIMB Research 2018-02-14: 4Q17 In Line; Awaiting Lion City Rental Deal Completion

ComfortDelGro - CIMB Research 2018-02-14: 4Q17 In Line; Awaiting LCR Deal Completion COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - 4Q17 In Line; Awaiting LCR Deal Completion

  • ComfortDelGro's FY17 core net profit of S$290.3m was within our/consensus estimates (S$293.5m/S$303.3m) at 98.9%/98.7% of our forecast.
  • FY17 core net profit fell 8.5% y-o-y, stemming largely from lower taxi (-19.3% y-o-y), automotive engineering (-33.1% y-o-y) and inspection services (-6.3% y-o-y) EBIT.
  • Regulatory approval for the acquisition of the 51%-stake in Lion City Rental (LCR) is still pending; hence the outlook for the taxi segment remains uninspiring.
  • Maintain HOLD, with a slightly higher DCF-based Target Price of S$2.16 (vs. S$2.15 previously) as we roll forward to CY19 forecasts.
  • LCR deal could help stem declines in net profit and moderate the mobility landscape given that there are now fewer players in direct competition, but this is still pending.

FY17 core net profit slides 8.5% on continued taxi fleet weakness 

  • ComfortDelGro's 4Q17 group net profit of S$59.5m (-25.7% q-o-q/-16.4% y-o-y); brought FY17 group net profit to S$290.3m (-8.5% y-o-y), which was within our estimate of S$293.5m. 
  • The lower FY17 net profit was mainly driven by lower taxi and automotive engineering EBIT which we believe is largely attributable to ComfortDelGro’s dwindling taxi fleet numbers. 
  • Better Singapore public transport EBIT was largely due to full-year contribution from the Bus Contracting Model (BCM).

Higher dividend payout ratio of 77% 

  • ComfortDelGro announced a final DPS of 6.05 Scts; taking FY17 DPS to 10.4 Scts. This translates into a payout ratio of 76.9%, close to our assumption of 75%. 
  • We believe ComfortDelGro is still in a comfortable position to pay DPS of c.10.4 Scts in FY18-20F given its strong operational cashflows and lack of taxi capex going forward. 
  • We think ComfortDelGro may keep the higher dividends to incentivise investors even though FY18-19F earnings may be sluggish.

Lion City Rental (LCR) still pending; more M&As on the cards 

  • The 51%-stake purchase of LCR is still pending regulatory approval at this juncture, but we note that management expects the move to not only spearhead ComfortDelGro’s entry into the private-car business and generate more business for its automotive engineering divisions from the maintenance of Uber’s cars and sale of petrol. 
  • It also guided that it is open to gear up for suitable M&As in the future.

Taxis slow for now; PTS better on lower rail losses 

  • Pending the closure of the LCR deal, ComfortDelGro guided that taxi segment revenue could remain uninspiring in the future. 
  • For the Public Transport (PTS) segment, revenue could be higher in Singapore due to higher ridership on the Downtown line which saw Phase 3 kick-start in Oct 17 but that will be counter-weighed by lower UK revenue due to continued unfavourable GBP currency translation during the year. 
  • Overall, we have already imputed higher PTS earnings as rail losses moderate in FY18F.

Maintain HOLD with higher Target Price of S$2.16; LCR deal completion is key 

  • We revise our FY18-19 net profit slightly by +1.4% and -0.9%, respectively, as we refine our forecasts, and introduce FY20F net profit estimates of S$290.7m. 
  • We maintain our HOLD call but roll forward our target price to CY19. The stock remains unexciting pending the final details of the LCR 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/ 2018-02-14
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 2.16 Up 2.150