ComfortDelGro Corporation (CD SP) - UOB Kay Hian 2018-02-14: 2017 In Line And Delivering On Dividends

ComfortDelGro Corporation (CD SP) - UOB Kay Hian 2018-02-14: 2017: In Line And Delivering On Dividends COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro Corporation (CD SP) - 2017: In Line And Delivering On Dividends

  • ComfortDelGro’s 4Q17 results were in line with our expectations, with 2017 net profit of S$302m which declined 5% y-o-y. Operating profit fell 12% y-o-y, but this was cushioned by lower minorities, taxes and higher investment income. 
  • More importantly, ComfortDelGro maintained its final DPS of 6.05 S cents/share, resulting in a total payout of 75% in 2017. 
  • Maintain BUY with a PE-based target price of S$2.25 (unchanged). We see potential earnings and target upside upon the approval of its UBER alliance.



RESULTS


No surprises, weaker operating profits offset by minorities, tax and investment income. 

  • ComfortDelGro Corporation’s (CD) 2017 net profit of S$301.5m was within our expectations of S$302.4m. 
  • Operating profits for FY17 fell 11.5% y-o-y, but this was mitigated by lower minorities (-22.7% y-o-y after buying out 49% of ComfortDelGro Corporation Australia), higher investment income (61.2% y-o-y increase to $22.4m; dividend distribution from Cabcharge Australia), and lower effective taxes. 
  • Other than public transport services, all other major segments saw declining 2017 operating profits - taxi (-19% y-o-y), automotive engineering (-33% y-o-y), vehicle inspection (-6% y-o-y), and driving centre (-8% y-o-y).

Delivering dividends with higher dividend payout. 

  • Meanwhile, the group declared a final DPS of 6.05 S cents (total 2017 DPS of 10.4 S cents). This translates to an increase in its dividend payout to 74.6% (from 70.1% in 2016). 
  • Meanwhile, financials remain strong, with ComfortDelGro in a net cash position of S$273.9m.


ESSENTIALS


Costs well maintained. 

  • ComfortDelGro’s 2017 costs declined 1.0% y-o-y, supported largely by lower payment for contract services (-7.0% y-o-y), lower road tax (-15% y-o-y), lower materials and consumables costs (-6.4% y-o-y), lower insurance premiums and accident claims (-7.8% yoy). This helped to offset the higher staff costs (+2.6% y-o-y) and repairs and maintenance costs (+2.9% y-o-y).

PTS continues to grow. 

  • This segment saw 2017 operating profit grow 0.4% y-o-y and could potentially see further increases as the DTL3 opened in Oct 17. The group hopes that DTL will break even in early-19 when average ridership hits 500k/day. The breakeven for DTL3 has been delayed as fares were reduced by 2.2% from 29 Dec 17.
  • As for its UK bus operations, Metroline is performing well, with two new routes but Scottish Citilink is seeing intensifying price competition. Its operations in Australia are performing well and management sees more M&A opportunities. Given the positive outlook and ComfortDelGro’s strong financials, there is potential for more M&As.

All eyes on its Uber alliance. 

  • Management guided that taxi idle rate was “low single digit” in 4Q17 and the average fleet decline was 15%. Market is awaiting the authorities’ approval for ComfortDelGro’s alliance with Uber. The alliance may include collaboration in management of fleet vehicles and booking software solutions in Singapore. 
  • We have not factored this into our estimates pending approvals, but we see a possible 5% upside in our 2018 estimates from the Uber alliance and LCR acquisition. In our view, the alliance is necessary as it gives ComfortDelGro an inroad to the ride-hailing business, where ComfortDelGro could raise driver retention rate through diversification and defend its market share.


EARNINGS REVISION/RISK


Introduce 2020 earnings; maintain 2018 but raise 2019 earnings marginally by up to 2%. 

  • We maintain our 2018 earnings but raise that of 2019 by up to 2% to factor in ramp-up and breakeven of the DTL as well as prudent cost management. However, we think our estimates are conservative as we have not assumed the potential uplift from the Uber alliance, and we continue to assume a 10% and 8% fall in 2018-19 taxi rental respectively. 
  • Furthermore, we think the group may be more aggressive in looking for accretive M&As but no updates were provided during the analyst briefing.


VALUATION/RECOMMENDATION


Maintain BUY with unchanged PE-based target price of S$2.25. 

  • Our target price is based on a long-term average PE of 16.6x. We see limited downside risk to current ComfortDelGro share price as taxi earnings will unlikely be zero in the next 2-3 years and the long-term outlook for public infrastructure (bus and MRT) in Singapore will still be very resilient. 
  • In fact, if the Uber alliance is approved, ComfortDelGro’s target price could see a 5% rise to S$2.36 post the earnings upgrade from the alliance.


SHARE PRICE CATALYST

  • Regulatory approvals for its proposed alliance with Uber.
  • Rising dividend payout.
  • More accretive and aggressive overseas acquisitions.




Andrew Chow CFA UOB Kay Hian | Thai Wei Ying UOB Kay Hian | http://research.uobkayhian.com/ 2018-02-14
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.250 Same 2.250



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