ComfortDelGro - OCBC Investment 2018-08-13: Looking Abroad For Growth

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COMFORTDELGRO CORPORATION LTD SGX:C52

ComfortDelGro - Looking Abroad For Growth

• Decent 2Q18 results.
• Expecting more acquisitions.
• Unchanged Fair Value of S$2.50.

2Q18 results largely within our expectations

• ComfortDelGro (CDG) reported a 5.4% y-o-y rise in revenue to S$941.1m but registered a 5.5% drop in net profit to S$75.0m in 2Q18, such that 1H18 net profit accounted for 46% and 44% of ours and the street’s full year forecasts, respectively.
• The higher revenue of S$48.0m was mainly due to improvement in the public transport services segment (S$66.1m), new acquisitions (S$20.4m) and others (S$2.0m), offset by decreases in the taxi business (-S$31.6m) and auto engineering services segment (-S$10.7m). 
• There was also favourable foreign currency translation of S$1.8m with the stronger pound and RMB, partially offset by the weaker AUD.

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Updates on rail and taxi business

• Management updated that for the Downtown line, ridership has hit 480k on full days, and they are hoping to hit 500k fairly quickly. Any fare increase along with higher ridership would also help in allowing ComfortDelGro to breakeven on this line, and we estimate a breakeven scenario to be likely next year.
• For the Bus segment, revenue is expected to be higher with the commencement of the Seletar Bus Package in Mar 2018 and the Bukit Merah Bus Package in 4Q18.
• As for the Singapore taxi business, with a more rational competition landscape, the business has stabilised; the recruitment of taxi drivers has improved leading to a higher utilisation of the fleet. As at end Jun, the group’s taxi fleet stood at 12,750, with an idle rate of about 2%.

Expecting more acquisitions

• As at Jun 2018, ComfortDelGro was in a net cash position of S$219.8m, compared to S$273.9m in Dec 2017. This puts it in good position to acquire more businesses – indeed according to management, the deal pipe-line remains strong and they hope to conclude more deals in the coming months to grow the business.
• An interim dividend of 4.35 S cents has been declared, same as last year. This translates to a payout ratio of 66.7%, compared to 58.1% last year.
• Recall that ComfortDelGro’s dividend policy is to pay out at least 50% of net profit. We maintain our fair value estimate of S$2.50 on the stock. 

Eugene Chua OCBC Investment Research | https://www.iocbc.com/ 2018-08-13

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