ComfortDelGro - Maybank Kim Eng 2018-05-14: Taxis Turning The Corner

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COMFORTDELGRO CORPORATION LTD SGX: C52

ComfortDelGro - Taxis Turning The Corner

Target Price raised 13% due to better taxi outlook

• ComfortDelGro's 1Q18 core earnings were in line, at 22% of our full-year forecast. Excluding a one-off income of SGD10m in 1Q17, core earnings fell 9% y-o-y. EBIT declined y-o-y for all divisions except for the bus and rail segments. 
• Management has turned more positive on the taxi segment, as more drivers are switching to taxis for more stable jobs. 
• We raised our FY19- 20E EPS by 3-4%, as we now expect the taxi segment to stop declining in FY19 onwards. Previously, we expected taxi EBIT to fall 3-8% for FY19- 20E. Also, to reflect a more positive taxi industry outlook, we raised our LTG rate to 1.5%, from 0%. 
• Accordingly, our DCF-based Target Price increased 13% to SGD2.65 (WACC 9.0%, LTG 1.5%).

Positive on taxis from healthy drivers’ demand

• Management has turned more positive on the taxi segment as it’s starting to see increased demand from drivers who switched from private hire cars, as they find taxis relatively more stable. In addition, taxi EBIT rose 19% q-o-q in 1Q18. 
• ComfortDelGro has managed to secure a net addition of c.30 drivers and it currently does not have sufficient vehicles to rent out. To recap, it recently placed an order for 200 new taxis, which is its first order in close to 1.5 years.

Bus and Rail segments continued to progress well

• We expect the bus segment to grow from the Seletar bus package, started in May 2018. 
• On the other hand, the operating loss of DTL3 continued to narrow, as the ridership increased. In 1Q18, the average daily ridership reached 431k, a 17% q-o-q increase.

Robust M&A pipeline will drive overseas expansion

• ComfortDelGro is actively evaluating many overseas M&A opportunities to grow its complementary businesses. However, it remains disciplined on price by assessing the geographical risks and potential synergies. 
• Seven M&A deals announced since Feb 2018 are expected to be completed by 2Q18. We estimate these could lift FY19E EPS by 2-3%.

Swing Factors

Upside

• Higher-than-expected bus profitability.
• Successful bids for new rail lines in Singapore.
• Value-enhancing acquisitions of overseas business.

Downside

• Decline in taxi utilisation or rental rates.
• Overpaying for acquisitions.
• Higher labour and energy costs. 

John Cheong CFA Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2018-05-14

SGX Stock Analyst Report BUY Maintain BUY 2.65 Up 2.350