ComfortDelGro - DBS Research 2018-08-08: Further Acquisitions Down Under

ComfortDelGro - DBS Group Research Research 2018-08-08: Further Acquisitions Down Under COMFORTDELGRO CORPORATION LTD SGX:C52

ComfortDelGro - Further Acquisitions Down Under

  • Further forays in Australia amounting to A$134m.
  • Move in line with management’s strategy to pursue inorganic growth opportunities.
  • Expect 2Q18 results to still show a decline, albeit smaller; project FY19 to revert to growth.
  • Maintain BUY, Target Price unchanged at S$2.59.

What’s New

Further acquisitions of A$134.45m Down Under.

  • ComfortDelGro, through its wholly-owned subsidiary, ComfortDelGro Corporation Australia Pty Ltd (CDC Australia), announced it is acquiring all the shares of FCL Holdings Pty Ltd (FCL) for a total consideration of A$110m (S$111.1m). In addition to that, CDC Australia has also entered into an agreement to acquire Terrey Hills Depot and Toormina Depot for A$15.45m (c.S$15.6m). Separately, it is also acquiring Coastal Liner Coaches for a consideration of A$9m (S$9.09m).

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  • The acquisitions are not surprising as it is in line with the momentum seen over the past year. In all, since July 2017, the group has accumulated c. S$270m in acquisitions, keeping with its plans to pursue inorganic growth. 
  • Overall, this is in line with our earlier note (4 July 2018: ComfortDelGro - Opportunity to Board) indicating that share price catalyst could arise from inorganic growth drivers to support its growth profile, other than organic expansion and recovery in its taxi fleet.

FCL operates a Sydney Metropolitan Bus Service Contract in Northern Sydney and five Rural & Regional Bus Service Contracts.

  • FCL operates a fleet of 220 buses across eight depots, and other than the contract bus services in Metropolitan NSW (Region 14) and regional NSW, it also has and school and non-school charter services. Based on the purchase consideration of A$110m, the acquisition is priced at approximately 8.1x EBITDA. The acquisition will be ed through a mix of internal funds and debt.
  • Coastal Liner Coaches operates route bus services in Outer Sydney Metropolitan Bus Service Region 11, with a fleet of 31 buses and coaches. Coastal Liner Coaches also specialises in luxury coach tour packages for theatre performances, concerts and day tours for individuals and small groups.

Forecast unchanged for now.

  • Based on 8.1x EBITDA paid for FCL, we estimate this acquisition can potentially increase our FY19F EBITDA estimate by about 1.6%-2%.

2Q18 to be released on 10 Aug 2018 – expect to see a smaller y-o-y drop compared to 1Q18.

  • ComfortDelGro will be releasing its 2Q18 results on Friday, 10 Aug 2018, after market close. 
  • Albeit at a smaller magnitude compared to 1Q18’s headline 20% drop to S$66.3m, we estimate 2Q18 net profit could still register a 6-9% y-o-y drop to about S$72m – S$75m, largely on the back of smaller taxi fleet in Singapore, mitigated partially by better Public Transport Services contribution.
  • Its taxi fleet in Singapore stands at c.12,600 compared to 15,000 a year back. This implies a c.20% drop in fleet size, and should be partially mitigated by higher rental rates for newer models introduced, coupled with lower rental rebates post the exit of Uber earlier this year. 
  • Anecdotal evidence from several taxi drivers has suggested that competition from private hire vehicles has ceded slightly and some of their peers (that previously hopped over to private hire) have reverted to driving taxis.

Andy SIM CFA DBS Group Research Research | https://www.dbsvickers.com/ 2018-08-08
SGX Stock Analyst Report BUY Maintain BUY 2.590 Same 2.590