ComfortDelGro - DBS Research 2018-11-05: Marking Largest Ever Acquisition Down Under

COMFORTDELGRO CORPORATION LTD (SGX:C52)

ComfortDelGro - Marking Largest Ever Acquisition Down Under

Largest foray Down Under with A$190.9m acquisition.
Entry into Northern Territory and Queensland, extending existing operations in New South Wales and Victoria.
In line with stated investment strategy; S$450m investments made year-to-date.
Maintain BUY, Target Price: S$2.59.

ComfortDelGro announced that its wholly-owned subsidiary, ComfortDelGro Corporation Australia Pty Ltd (CDC Australia), has entered into an agreement to acquire all the issued shares Buslink Pty Ltd and Buslink Southern Pty Ltd.
The purchase consideration is A$168.2m (S$165m). On top of that, CDC Australia is also acquiring 11 depot properties amounting to A$22.7m (S$22.3m), bringing the total consideration to A$190.9m (S$187m).
At A$168.2m, the purchase consideration for the business equates to about 7.9x EBITDA.
Funding will be via a mix of internal funds and debt. The transaction is subject to regulatory approval. The deal is expected to be completed by 30 November 2018.

The Buslink companies operate a fleet of 401 buses across four states in Australia (Northern Territory, Queensland, New South Wales, and Victoria). It is contracted to run 164 buses in Northern Territory, 151 buses in Queensland, and 86 buses in New South Wales/Victoria.
According to ComfortDelGro’s announcement, this acquisition marks an entry into the Northern Territory and Queensland markets, and also extends its operations in New South Wales and Victoria, where the Group has a presence with a total fleet of 2,250 buses. Buslink is the largest private operator in the Northern Territory, and has 70% share of Darwin’s urban network.

In our view, the acquisition is hardly surprising given its string of acquisitions in the past year or so and investing over S$450m year-to-date, with the bulk in Australia. In addition, the acquisition is in public transport (and related lines of businesses), which we believe is within management’s expertise.
We estimate that the acquisition will add about c.2-3% to our FY19F EBITDA forecast. While this is the largest acquisition for the Group in Australia to-date, it still represents a bite-size and bolt-on type of investment, which we view positively as it helps to diversify risks.
Going forward, we note that ComfortDelGro has been and continues to stay on track in its investment strategy. In fact, it has also indicated that it want to focus on other opportunities which leverage on technology and artificial intelligence.

We maintain our BUY recommendation with unchanged Target Price of S$2.59.
We retain our forecasts for now, but note of possible upside tweaks on the back of this acquisition, coupled with the recently announced fare increase in Singapore of 4.3% effective 29 Dec 2018.
Our thesis is also premised that the competition scene for private hire/ taxi industry will not be prolonged with the impending entry of Go-Jek in Singapore.

Andy SIM CFA DBS Group Research | https://www.dbsvickers.com/ 2018-11-05

SGX Stock Analyst Report BUY MAINTAIN BUY 2.590 SAME 2.590