ComfortDelGro - CGS-CIMB 2018-05-12: Worst Is Over; But More Catalysts Are Still Needed

ComfortDelGro - CGS-CIMB 2018-05-12: Worst Is Over; But More Catalysts Are Still Needed COMFORTDELGRO CORPORATION LTD SGX: C52

ComfortDelGro - Worst Is Over; But More Catalysts Are Still Needed

  • ComfortDelGro's 1Q18 core net profit was within our/consensus estimates at 23.7%/22.2% of full-year forecasts (S$287.5m/S$298.8m).
  • 1Q18 group net profit fell on lower taxi and automotive engineering EBIT.
  • However, ComfortDelGro has guided that taxi fleet may see some growth as marginal demand is coming back. It is also in acquisition mode in its other segments.
  • We lift our FY19-20F EPS by 5.1% p.a. as we forecast flat taxi earnings ahead instead of our forecast of a y-o-y decline previously.
  • Maintain HOLD as total return is currently at 6.4% (+1.9% share price upside; 4.5% dividend yield).

1Q18 core net profit fell 7.0% y-o-y

  • 1Q18 group core net profit of S$66.3m (+11.4% q-o-q/-7.0% y-o-y) was 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 higher mileage operated and fees earned under the Bus Contracting Model (BCM).

Taxi fleet could see slight growth in FY18F

  • Taxi 1Q18 EBIT fell to S$30.1m (1Q17: S$33.8m) on lower taxi fleet, in our view. 
  • In Feb 18, ComfortDelGro’s taxi fleet shrank to an average of 12.8k taxis. However, idling rate was guided to be narrower at 2-3% in 1Q18 (from estimated 5-7% in FY17) as older taxis were scrapped last year, leading to a slight uptick in taxi margins to 16.6% (vs. 1Q17: 15.9%). 
  • ComfortDelGro placed an order for 200 new hybrid Hyundai Ioniqs in May and guides for the potential for further additions moving ahead.

Singapore bus up due to BCM model, rail still in losses

  • Singapore public transport 1Q18 operating profit rose 57.9% y-o-y to S$20.6m due to better revenues from higher mileage operated and one-off recoveries of Seletar pre-operation costs and higher income from the provision of shuttle services. 
  • Ridership increased for rail operations but it still faced losses on account of the start-up of the Downtown line that was guided to break even in FY19F. 
  • ComfortDelGro also guided that the New Rail Financing Framework will be implemented on the NEL and SPLRT in 2Q18.

In M&A mode to drive growth

  • YTD, ComfortDelGro has embarked on c.S$140m worth of acquisitions in its bid to grow its other businesses and has guided that it is still in the market for M&A opportunities. 
  • Management guided that it still wants to move into the private hire space and is open to considering other avenues to enter the segment beyond its discussions with Lion City Rental (LCR) on a strategic tie-up previously.

FY19-20F core EPS up by 5% y-o-y; back to growth mode

  • With the taxi woes now over, we believe taxi EBIT could stay flat, versus our previous expectations of a y-o-y drop. As such, we lift our FY19-20F EBIT to S$113.6m/S$114.2m (from S$94.2m/S$94.2m previously). This leads to overall FY19/20F net profit increasing by 5.1% p.a.

Maintain HOLD but with a higher Target Price of S$2.37

  • Our DCF-based Target Price is lifted to S$2.37 (from S$2.16) due to our earnings upgrades and as we also raise our terminal growth rate to 1.5% (from 1% previously) as we note that ComfortDelGro is on an M&A track that could lead to future growth. However, with total returns of 6.4% (+1.9% share price upside; 4.5% dividend yield), we maintain our HOLD call on the stock. 
  • Upside risks include possible earnings-accretive M&As and higher dividends. 
  • Downside risks include further deterioration in taxi and public transport profits.

Cezzane SEE CGS-CIMB | LIM Siew Khee CGS-CIMB | https://research.itradecimb.com/ 2018-05-12
SGX Stock Analyst Report HOLD Maintain HOLD 2.37 Up 2.160