ComfortDelGro - CGS-CIMB Research 2019-02-13: FY18 In Line; En-route To Stronger Growth


ComfortDelGro - FY18 In Line; En-route To Stronger Growth

  • ComfortDelGro's FY18 core net profit of S$298m (+2.3% y-o-y) was in line with our/consensus forecasts, lifted by profits from new acquisitions and growth in core business.
  • It declared a final DPS of 6.15 Scts, bringing total FY18 DPS to 10.5 Scts which represents 75% payout ratio. We project FY19F dividend yield of 4.6%.
  • Maintain ADD and unchanged Target Price of S$2.74.

FY18 core net profit at 101%/100% of our/consensus forecasts

  • The increase in COMFORTDELGRO CORPORATION LTD (SGX:C52)'s FY18 core net profit came on the back of higher revenue (+6.4% y-o-y), driven mainly by contributions from new acquisitions (S$124m) and revenue gains of S$116m from business-as-usual.
  • New acquisitions contributed S$21m out of a total increase of S$30m in operating profit for the year.
  • The increase in operating profit from public transport services offset the decline in the taxi segment.

Worst may be over for taxi business

  • Operating profit from taxi was down 3.4% y-o-y at S$129m, mainly due to lower fleet size in Singapore amid competition from ride-hailing firms. However, we believe the worst is over as ride-hailing firms have cut back on drivers’ incentives.
  • Taxi idle rate came in at about c.3%. ComfortDelGro has taken delivery of over 900 new hybrid taxis (commanding higher rental rates than older models) with orders placed for another 600 new models to be delivered over the next few months for fleet replacement.

Positive growth outlook for public transport services

  • Management guided for higher revenue contributions from both the Singapore public transport services business and Australia bus business. Growth in Singapore would be driven by a full year’s contribution from the Seletar and Bukit Merah bus packages, higher rail riderships and a 4.3% fare adjustment this year.
  • The acquisition of new bus businesses, mostly in Australia, could fuel further revenue growth.

Acquisition spree could continue in FY19

  • Having made c.S$470m worth of acquisitions in FY18, ComfortDelGro still seeks viable acquisitions overseas to boost its cash flow generation and could comfortably gear up if necessary. Acquisition targets would likely only be in developed countries due to lower inherent risks.
  • As at end-Dec 18, ComfortDelGro remains in a net cash position with a 19% gross gearing ratio.

Maintain ADD with a Target Price of S$2.74

  • Our DCF-derived Target Price remains unchanged at S$2.74 (WACC: 7.8%; LTG: 2%), which implies 17.5x FY20F P/E. Refer to the PDF report attached for DCF valuation details. 
  • At 15.7x 12M forward P/E, ComfortDelGro trades below its 7-year historical average (16.7x), along with FY19F dividend yield of 4.6%.
  • Affirmed expansion of its taxi fleet in the coming months is a potential re-rating catalyst.
  • Key risks to our call are stagnating/declining taxi fleet and weaker-than-expected contributions from acquisitions.

Colin TAN CGS-CIMB Research | Cezzane SEE CGS-CIMB Research | https://research.itradecimb.com/ 2019-02-13
SGX Stock Analyst Report ADD MAINTAIN ADD 2.740 SAME 2.740