ComfortDelGro - CGS-CIMB Research 2018-11-09: 3Q18 In Line; On Track To Earnings Growth Recovery


ComfortDelGro - 3Q18 In Line; On Track To Earnings Growth Recovery

  • ComfortDelGro's 3Q18 net profit of S$79m (- 2% y-o-y; +5% q-o-q) came in line with expectations; 9M18 net profit formed 74%/73% of our/consensus FY18F forecasts.
  • ComfortDelGro's taxi fleet in Singapore is expanding; management sees neither signs of taxi driver attrition nor any significant uptake in PDVL course in its academy.
  • Maintain ADD with positive outlook of earnings growth recovery ahead.

A good set of results

  • ComfortDelGro reported 3Q18 net profit of S$79m (vs. our forecast of S$77m) on the back of higher revenue at S$968m (+9% y-o-y, +3% q-o-q).
  • Operating profit from public transport services rose 17% y-o-y, helped by higher fees earned following the commencement of Seletar Bus Package in Mar 18 as well as higher ridership from rail services. About S$2m in operating profit was contributed by new acquisitions in Australia and the UK.

Taxi business steadily recovering; no signs of taxi driver attrition

  • Taxi operating profit came in at S$33.6m (-10% y-o-y, +4% q-o-q) for the quarter as its taxi fleet in Singapore remained on the uptrend in Jul-Sep 18 period.
  • Despite new income incentives from Grab and pending entry of Go-Jek in the private-hire car (PHC) market, management sees neither signs of taxi driver attrition nor any huge uptakes for Private Hire Car Driver’s Vocational Licence (PDVL) course at its academy. Taxi idle rate remains near c.2% and ComfortDelGro will be taking delivery of 700 new hybrid taxis by end-2018.

Hopeful of breakeven in rail operations in 2H19

  • With rail fare set to rise 4.3% by end-Dec, management is cautiously hopeful of its rail operations achieving breakeven in 2H19.
  • Average daily ridership rose across all three rail lines with Downtown line (DTL) clocking in an average daily ridership of 472k passengers in 3Q18.

Strategic plan to develop/acquire new mobility technologies

  • ComfortDelGro will be setting up a US$888m venture capital fund to invest in technology start-ups that would complement its land transport business and could provide it with new strategic capabilities ahead.
  • Called ComfortDelgro Capital Partners, the fund will focus on next-generation mobility companies raising early seed stage Series A or Series B funding rounds.

Maintain ADD

  • ComfortDelGro is now trading at 88.8x 88M forward P/E, below its 10-year historical mean of 88.8x. We raise our FY19-20F EPS forecasts as we factor in the recent A$888m acquisition of Buslink in Australia and the 8.8% rail fare hike adjustment.
  • Our DCF-derived Target Price, which implies a FY19F P/E of 88.8x, is slightly lowered to S$8.88 (WACC: 8.8%; LTG: 8%) as we project ComfortDelGro to return to a possible net debt position in FY19F.
  • Key risk is a revival in PHC competition that could impact a recovery in ComfortDelGro’s taxi earnings.

Colin TAN CGS-CIMB Research | Cezzane SEE CGS-CIMB Research | https://research.itradecimb.com/ 2018-11-09
SGX Stock Analyst Report ADD MAINTAIN ADD 2.74 DOWN 2.750