ComfortDelGro - UOB Kay Hian 2019-05-15: 1Q19 Slight Miss; But Positive Of An Australian Bounce

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

ComfortDelGro - 1Q19: Slight Miss; But Positive Of An Australian Bounce

  • COMFORTDELGRO CORPORATION LTD (SGX:C52)’s results missed slight with 1Q19 core net profit at S$70.4m forming 22% of our and consensus forecasts.
  • Net profit, up 6.2% y-o-y, was aided by stronger public transport services as well as newly-acquired businesses.
  • Overseas acquisitions contributed only 46% of operating profit growth, though we are looking forward to better contributions from the segment.
  • Maintain BUY and accumulate on dips, with a PE-based target price of S$2.77.



ComfortDelGro's 1Q19 RESULTS


1Q19 results a slight miss.

  • COMFORTDELGRO CORPORATION LTD (SGX:C52) reported 1Q19 headline net profit of S$70.4m (+6.2% y-o-y, -10.2% q-o-q). 1Q19 core net profit forms 21.5%/21.9% of our and consensus estimates a slight miss from expectations. Core net margin was flat at 7.4% (-0.1ppt y-o-y, -0.3ppt q-o-q).

Revenue growth of 8% y-o-y, driven by acquisitions.

  • ComfortDelGro reported 1Q19 revenue of S$947.3m (+8% y-o-y, -7% q-o-q), driven by contributions from new acquisitions. The new acquisitions contributed about S$55m or 80% of the revenue increase.
  • Operating profits grew 12% y-o-y to S$107m, with new acquisitions contributing about S$5.4m or 46% of the increase. Operating margins for new acquisitions came in at about 12-13% and ComfortDelGro will likely deliver stronger contributions in subsequent quarters, given one-off costs incurred in the initial takeover.

Healthy public transport.

  • Revenue was at S$685m (+12% y-o-y, -7% q-o-q), helped by higher revenue from acquired bus services in Australia as well as higher fees earned with higher operated mileage from bus services (Seletar and Bukit Merah Bus Packages) and higher ridership and average fare from rail services in Singapore.
  • The downtown line (DTL), though still loss making, continues its steady momentum, reaching 476,000 daily riderships in 1Q19 (2018: 450,000).

Taxi slightly weaker.

  • Taxi revenue was down (-3.8% y-o-y, -3.9% q-o-q) with weaker contribution from China and Australia. Australia saw a smaller operating fleet whereas China had a lower number of double shift taxis in Beijing and smaller operating fleet at Nanjing. Management noted that drivers were harder to come by given competition from private hires.
  • Singapore taxis saw a stronger trend in bookings though competition with private hires still remains and a flattish trend may be expected. Taxi operating profit of S$28m indicated a margin of 16.4% (1Q18: 16.7%, 4Q18: 18.7%)


STOCK IMPACT


Participation in tenders overseas.

  • Management indicated that ComfortDelGro will participate in bus tenders in Australia, with upcoming locations in Perth and Adelaide in consideration. Competition in the tenders may prove difficult, as extended criteria such as on-demand services are included in tender requirements. ComfortDelGro’s operational track record, however, puts it in good stead.

New dynamic pricing model set to compete with private hires.

  • ComfortDelGro recently introduced a dynamic pricing model to its booking app, set to compete with private hire apps such as Grab and Gojek. This will see fares adjust according to demand and supply, though peak surges will be limited. While taxi bookings are on an uptrend, we are neutral on the development as private hires still command a large proportion of ride hire market share.
  • Counter-measures by private hires are also currently in place, such as “Droplet”, an insurance offered in partnership between Grab and NTUC to guard against surge pricing during rainy days, encouraging customer stickiness. Management also noted that the enhancements to the app will be introduced on a progressive basis.


EARNINGS REVISION/RISK

  • None.


VALUATION/RECOMMENDATION


Maintain BUY and PE-based target price of S$2.77, and accumulate on dips.

  • Our target price is pegged to 17.5x, one-year forward PE, pegged to 2020F earnings, reflecting ComfortDelGro’s long-term mean PE since 2013.


SHARE PRICE CATALYST

  • More earnings-accretive and aggressive overseas acquisitions
  • Regulation changes in taxi and public transport





Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-05-15
SGX Stock Analyst Report BUY MAINTAIN BUY 2.770 SAME 2.770



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