ComfortDelGro - Maybank Kim Eng 2019-05-15: Guarded Optimism

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COMFORTDELGRO CORPORATION LTD (SGX:C52)

ComfortDelGro - Guarded Optimism

Results in line. Maintain forecasts and HOLD.

• COMFORTDELGRO CORPORATION LTD (SGX:C52)’s 1Q19 net profit of SGD70m (-7% y-o-y; +8% q-o-q) was in line with our/market expectations. The quarter benefitted from the further ramp-up in public transport services.
• Looking ahead, growth should continue to be driven by overseas contributions. As such, we maintain forecasts and our DCF-based (WACC 9.0%, LTG 1%) Target Price of SGD2.45.
• Irrational taxi competition remains a risk to our outlook, while significantly sized acquisitions could provide upside.
• Maintain HOLD.

A decent 1Q19

• ComfortDelGro’s 1Q19 revenue, EBIT and profit reflected the seasonal q-o-q contraction, achieving 23% of FY19E net profit vs. 22% in 1Q18 of FY18 profit.
• On a y-o-y basis, revenue and EBIT growth reflected continued momentum of Singapore and overseas public transport services. In contrast, it also reflected continued pressure on the taxi businesses from ride hailing competition and general belt tightening due to economic uncertainties.

Room for hope under the right circumstances

• We note positively that ComfortDelGro's EBIT margin for 1Q19 was higher at 11.3% vs 10.9% a year ago due to the contribution from Australia public transport investments. This contrasts with management guidance of margin pressure in FY19.
• The resilience and potential upside for margins are tied to the degree of ride hailing competition. That said, we continue to adopt management’s conservative margin outlook of margin contraction and thus maintain forecasts.

New taxi initiatives, potential acquisitions

• Management recently unveiled the adoption of surge-pricing options for its taxi customers and drivers. It’s also opening up to accept private-hire drivers to address unmet peak hour demand. It is early days, however, and care is being taken to deploy this gradually.
• On the other hand, management remains keen on acquiring public-transport businesses in Australia but it acknowledges bids are competitive for the more attractive routes.

Luis Hilado Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-05-15

SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.450 SAME 2.450