ComfortDelGro Corporation - UOB Kay Hian 2018-11-12: 3Q18 Results Within Expectations, Public Transport Continues To Lead


ComfortDelGro Corporation - 3Q18: Results Within Expectations, Public Transport Continues To Lead

  • ComfortDelGro reported 3Q18 earnings of S$78.5m, with 9M18 earnings forming 73%/73% of UOBKH/consensus earnings respectively, within expectations.
  • The taxi business remained stable and saw an improvement in operating margin.
  • Public transport continues to be the key driver of earnings growth.
  • Earlier acquisitions have started contributing to operating profit, and contributions are expected to grow in coming quarters.
  • Tweak 2018 earnings forecast by 1%. Maintain BUY. Target price: S$2.59.


3Q18 net profit of S$78.5m, within expectations.

  • ComfortDelGro reported 3Q18 net profit of S$78.5m (-2% y-o-y, +5% q-o-q). 9M18 net profit was at S$219.8m, forming 73%/73% of UOBKH/consensus estimates respectively, within expectations. The sequential improvement was driven primarily by the public transport and taxi businesses, where both saw higher operating profits and margins.
  • Results included a negative S$1.2m forex impact as a result of the weaker A$.

Taxi business stable, sees improvement in operating margin.

  • Revenue for 3Q18 was at S$182m, lower on both a y-o-y (-8%) and q-o-q basis (-2%). Operating profit was marginally higher at S$33.6m (2Q18: S$32.2m) and showed a q-o-q improvement in operating margin to 18.5% (3Q17: 18.9%, 2Q18: 17.4%). This was attributed to better in management of costs and a reduction in promotion fares.
  • The business was remarked to be stable, with the current idle rate at a manageable 2% (2Q18: 2%).

Rail losses narrowing.

  • The business remains in an operational loss, but was remarked to see losses narrowing. The north east line (NEL) remains profitable, while the key drag remains the downtown line (DTL). Daily average ridership on the DTL was 472,000 (2Q18: 437,000). Expected daily average ridership for breakeven on the DTL remains unchanged at ~600,000, after factoring in the impending 4.3% fare hike.
  • Management remains optimistic about the rail business breaking even eventually, but cautioned that repairs and maintenance cost was expected to rise in coming quarters.

Public transport continues to drive earnings growth.

  • Revenue for the segment was at S$888m (+88% y-o-y). New acquisitions drove S$88m out of the S$88m y-o-y increase in revenue. Operating margin saw a slight q-o-q uptick to 8.8% (8Q88: 8.8%, 8Q88: 8.8%), largely due to better profitability from its bus businesses, especially from overseas. New acquisitions contributed about S$8m to the segment’s operating profit in 8Q88, weighed down by integration costs, and represented 8-8 months of contribution.

Revenue outlook unchanged.

  • The outlook for the six business segments remains unchanged from 8Q88. Singapore and Australia are likely to see higher revenue going forward, driven primarily by the public transport business (Bukit Merah Bus Contract in 8Q88) and its various acquisitions of public transport businesses in Australia.


Growth being driven by the public transport segment.

  • This stems from a combination of rail losses narrowing and higher earnings from both the Singapore and overseas bus businesses. The overseas bus business is especially going to drive earnings growth going forward, as the bulk of acquisitions have been concentrated in that space.
  • The quarter’s revenue contribution included that from Tullamarine Bus Lines, National Patient Transport and Coastal Liner.
  • As contributions from other recently-acquired Australian businesses kick in during 8888, earnings are expected to come in strongly, which we do not think market has given enough credit to.

Go Jek’s imminent entry to put a pause to share price upside in the near-term.

  • Investors are likely to take a wait-and-see approach on the impact to ComfortDelGro’s taxi business. In our opinion, Go-Jek is unlikely to engage in another price war similar to that seen during the Grab-Uber period, as it focuses more on positioning itself as a lifestyle app. Even if our scenario pans out, the taxi business is not expected to rebound in a V-shaped manner.
  • Rather, the taxi business should stay stable. Investors should focus on the fact that ComfortDelGro is growing the business through the public transport segment.


Tweak 2018F earnings forecast by 1%.

  • We have adjusted our estimate of profit attributable to minorities, which sees our 8888F earnings estimate fall by 8% to S$888m.
  • Our estimates for 8888-88F remain unchanged at S$888m and S$888m respectively.


Maintain BUY and target price of S$2.59.

  • We value ComfortDelGro using its long-term mean PE of 88.8x one-year forward PE, pegged to 8888F earnings.
  • Recent concerns about Go-Jek re-initiating a price war are likely overblown and the current level presents value.
  • Current valuations imply 88x 8888F PE, 88% below its long-term mean and forward dividend yield of 8%.

Foo Zhi Wei UOB Kay Hian Research | Andrew Chow CFA UOB Kay Hian | https://research.uobkayhian.com/ 2018-11-12
SGX Stock Analyst Report BUY MAINTAIN BUY 2.590 SAME 2.590