ComfortDelGro Corp Ltd - Phillip Securities 2018-05-14: Acquisition Spree To Bear Fruit In 2H 2018

ComfortDelGro Corp Ltd - Phillip Securities 2018-05-14: Acquisition Spree To Bear Fruit In 2H 2018 COMFORTDELGRO CORPORATION LTD SGX: C52

ComfortDelGro Corp Ltd - Acquisition Spree To Bear Fruit In 2H 2018

  • Revenue was 15% lower than our forecast, as the adoption of SFRS(I) 15 resulted in a change in how revenue and expenses is reported.
  • Key changes to reporting revenue and expenses are contract services (relates to cashless payments) and taxi drivers’ benefits.
  • Our revenue forecast would have been an estimated 5% higher than actual, had our forecast was in accordance with SFRS(I) 15.
  • PATMI was 22% lower than our forecast, due to a combined effect of our aggressive revenue forecast and higher than expected opex.
  • Excluding one-off special dividend in 1Q17, recurring PATMI is -8.6% y-o-y lower.
  • Some positive one-offs for Bus during the quarter and Taxi outlook has improved.
  • Downgrade to ACCUMULATE on the back of recent positive ComfortDelGro share price movement; lower target price of $2.49 (previously $2.50).



The Positives

  • SBST’s 64% y-o-y higher NPAT exceeded our expectation due to Bus. Higher Bus contribution was due to quality incentives for 2017 and 2018 under the government bus contracting model and “operating shuttle services for early closure and late opening of the East-West MRT Line”.
  • DTL loss narrowed q-o-q off its high in 4Q17. Quarterly loss for Downtown Line (DTL) peaked at $(15.6)mn in 4Q17 and has narrowed to $(9.1)mn. We had stated in our previous results report (ComfortDelGro - Higher Dividends and A Recovery Underway) to expect the loss to narrow going forward, on the basis that the full DTL is now operating and no longer incurring start-up costs. 1Q18 DTL average daily ridership has grown 76% y-o-y and 16% q-o-q to 431k.


The Negatives

  • ComfortDelGro & CityCab taxi fleet contracted 21% YoY, contributing to 15% YoY lower Group Taxi revenue. ComfortDelGro & CityCab fleet contracted 4% q-o-q to 12,687 and the idle rate for the quarter was just under 3%. Single-digit idle rate has been maintained by fleet size rationalisation.


Outlook

  • The outlook is mainly positive. Recent consolidation of the private-hire car industry has resulted in pricing rationalisation, in turn resulting in some flow of drivers back to Taxi. The purchase of 200 new taxis signals the worst could be over, which we discussed in our recent Land Transport sector report (May 9). 
  • For the Public Transport Services segment, the narrowing of DTL losses to continue and contribution from the Seletar bus package will contribute positively in 2018. Recent acquisitions announced are expected be completed by 2Q18 and contribute positively from 3Q18. 
  • Negative impact from the transition of North East Line (NEL) and Sengkang LRT and Punggol LRT (SPLRT) to the new rail financing framework (NRFF) since April 1, is margin will being capped at ~5% from previous estimated mid- to high- teens.


Opportunity:

  • Transport Minister in a recent speech suggested shortened train service hours in order to complete the five year power supply renewal project earlier. SBS Transit could be a beneficiary by providing the bridging bus services.


Downgrade to Accumulate; lower target price of $2.49 (previously $2.50)

  • We have re-modelled our revenue and cost assumptions, due to adoption of SFRS(I) 15. Our FY18e/FY19e PATMI is now -3.8%/-3.1% from previous estimates. (Change in revenue from previous assumption is not comparable due to different accounting standards applied.) 
  • Our new target price gives an implied FY18e forward P/E multiple of 17.8 times.
  • The 4.5% dividend yield is sustainable and attractive.


Key Takeaways

  • Management shared some insights to some of the ongoing issues.


Strategy for private hire

  • Lion City Rentals (LCR) deal still in negotiations, and there is uncertainty if it will proceed due to Uber’s exit from Singapore.
  • Retail and larger shareholders gave feedback at recent AGM of not liking the LCR deal.
  • Management still wants to get into the private-hire space as a provider of cars to drivers, and will not be involved in the operations of the ride-hailing platform.


Robust M&A pipeline

  • $123mn spent on M&A year-to-date, compared to $166mn in the preceding five years.
  • The Group has been on an acquisition trail and has been approached on many deals.
  • Management maintained that it will utilise capital prudently and apply the necessary due diligence for each deal.





Richard Leow CFA Phillip Securities | https://www.stocksbnb.com/ 2018-05-14
SGX Stock Analyst Report ACCUMULATE Downgrade BUY 2.48 Down 2.500



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