ComfortDelGro Corporation - UOB Kay Hian 2019-02-14: 4Q18 Earnings In Line; Taxi Profitability Maintained Despite Go-Jek’s Entry

COMFORTDELGRO CORPORATION LTD (SGX:C52) | SGinvestors.io COMFORTDELGRO CORPORATION LTD (SGX:C52)

ComfortDelGro Corporation - 4Q18: Earnings In Line; Taxi Profitability Maintained Despite Go-Jek’s Entry

  • ComfortDelGro’s results are in line. 4Q18 core net profit was S$78.4m, with full-year core net profit at S$298m forming 100% of our and consensus forecasts. Taxi operating profit was stronger than expected despite the smaller taxi fleet. Overseas acquisitions drove 70% of operating profit growth in 2018, despite partial contributions.
  • Concerns on ride-hailing competition are abating, and earnings are returning to growth.
  • No change in estimates. Maintain BUY and raise target price to S$2.66.



4Q18 RESULTS


Results in line: 4Q18 core net profit of S$78.4m.

  • COMFORTDELGRO CORPORATION LTD (SGX:C52) reported 4Q18 headline net profit of S$83.5m (+40% y-o-y, +6% q-o-q), which included ComfortDelGro’s share of its gain on surrender of lease of Teban Gardens (S$5.1m). Excluding the one-off, 4Q18 core net profit was S$78.4m (UOBKH: S$77.6m).
  • For 2018, core net profit was S$298.2m, forming 100% of our and consensus estimates, in line with expectations. Core net margin was 7.7% (+1.3ppt y-o-y, -0.4ppt q-o-q).

Public Transport drove 4Q18 revenue growth of 10% y-o-y.

  • ComfortDelGro reported 4Q18 revenue of S$1,017m (+10% y-o-y, +5% q-o-q), driven by contributions from the Public Transport segment. Revenue was largely within expectations, at 102% of our estimates.
  • The largest deviations came from the Taxi and Bus Station businesses, which came in at 96% / 69% of our expectations respectively.

New acquisitions drove growth in 2018.

  • Of the S$239.9m increase in revenue for FY18, S$124.2m (52%) was driven by overseas acquisition. This drove the bulk of operating profit growth, contributing 70% (S$20.7m) of the S$29.6m increase in operating profit for FY18.
  • For 4Q18, new acquisitions contributed an estimated S$70m in revenue, with operating margins at 14-15%.

Taxi operating profit and margin stable.

  • Operating profit for 4Q18 was S$33.5m (+38% y-o-y, -0% q-o-q) on lower revenue of S$178.9m (-2.7% y-o-y), reflecting operating margin of 24.9% (4Q17: 17.1%, 3Q18: 24.3%). Taxi operating profit was 11% above our 4Q18 expectations of S$30m.
  • ComfortDelGro has taken delivery of 900 hybrids, and expects to take delivery of another 600 hybrids within 2019. Blended average daily rental rate was remarked at S$110, largely unchanged. A smaller taxi fleet, coupled with a 10% reduction in insurance premiums, saw the quarterly line item decline to S$21.6m (-34% y-o-y, -18% q-o-q).

Public Transport operating profit rose 40% y-o-y.

  • Revenue was S$740m (+13% y-o-y, +7% q-o-q), helped by higher revenue from SBS TRANSIT LTD (SGX:S61) (commencement of Bukit Merah bus package and revenue contributions from new acquisitions in Australia and the UK).
  • Operating profit was S$62.4m (+40% y-o-y, +8% q-o-q), reflecting an operating margin of 8.4% (4Q17: 6.8%, 3Q18: 8.3%). This was above our expectations of S$58m operating profit for the segment.

DTL remained in losses.

  • Daily ridership for the DTL reached 450,000 in 2018. However, it remains loss making, with losses slightly lower vs 2017.
  • ComfortDelGro expects the DTL to breakeven at an average daily ridership of 600,000, although it cautioned that this was subject to various factors, such as:
    1. no further fare reductions and,
    2. ridership volume grows as projected by the government.

Final dividend of 6.1 S cents declared.

  • This was slightly above our expectations of 6.05 S cents. Full-year dividend is 10.5 S cents, reflecting ~75% dividend payout ratio.


STOCK IMPACT


Stable taxi performance in 4Q18 positive for share price.

  • The solid performance from the Taxi business shows that concerns regarding Go-Jek’s entry are largely overblown. With Go-Jek already reducing incentives in Jan 19, the threat it poses diminishes. ComfortDelGro’s SG Taxi business is likely to remain stable at the very least. Share price will likely reflect this positive development.

Earnings growth to hinge on Public Transport.

  • ComfortDelGro’s overseas acquisitions contributed ~70% of operating profit growth, and its full-year contributions will be the main driver of growth. The strong 4Q18 figures will provide confidence that its acquisition strategy is working. That said, future growth and share price performance depends on ComfortDelGro continuing to execute its acquisition strategy well.


EARNINGS REVISION/RISK


No change to earnings estimates.

  • Our 2019/2020 earnings estimates are largely unchanged at S$325m/S$343m respectively.
  • We introduce 2021 earnings at S$350m.


VALUATION/RECOMMENDATION


Maintain BUY, lift target price to S$2.66.

  • We roll over our target price to S$2.66, pegging it to its long-term mean 1-yr forward PE of 16.8x. Current ComfortDelGro share price reflects a forward dividend yield of 4.8%.
  • Valuations are undemanding at 15x 2020F PE. With growth in place, and the threat from ride-hailing companies abating, we maintain our BUY call.





Foo Zhi Wei UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-02-14
SGX Stock Analyst Report BUY MAINTAIN BUY 2.66 UP 2.590



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