ComfortDelGro Corporation 2Q19 - UOB Kay Hian 2019-08-14: Missed Expectations, Impacted By Forex Rates

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

ComfortDelGro Corporation 2Q19 - Missed Expectations, Impacted By Forex Rates

  • ComfortDelGro reported flat y-o-y net profit of S$76m in 2Q19, missing expectations. While its new acquisition contributed positively, the group was impacted by forex rates. Maintenance costs for the rail line are expected to rise but may be helped slightly by fare hikes and a temporary rail grant under consideration by the authorities.
  • We still like ComfortDelGro’s resilient public transport segment.
  • Maintain BUY with a revised PE-based target price of S$2.95 (previously S$3.08).



2Q19 RESULTS


2Q19 results a miss.

  • COMFORTDELGRO CORPORATION LTD (SGX:C52) reported flat y-o-y headline net profit of S$75.9m (+1.2% y-o-y, +7.8% q-o-q) in 2Q19, while 1H19 forms 45% and 46% of our and consensus full-year estimates. Core net margin was flat at 7.7% (-0.3ppt y-o-y).
  • While acquisitions aided growth, the group was impacted by forex rates. Interim dividend is raised to 4.5 S cents (1H18: 4.35 S cents), while payout ratio remains unchanged.

Contribution from acquisitions improved, but impacted by forex rates.

  • ComfortDelGro's 2Q19 revenue was S$980.8m (+4.2% y-o-y, +3.5% q-o-q), driven by contributions from new acquisitions as well as better contributions from the public transport business on higher mileage and fare increment. The new acquisitions contributed a higher S$8.4m increase to operating profit (1Q19: S$5.5m). However, the group continued to be impacted by unfavourable forex rates from a weaker A$, £ and renminbi, impacting top-line by up to S$17m.

Better fare contribution but watching for maintenance costs from public transport.

  • Revenue was S$723.8m (+7.9% y-o-y, +5.6% q-o-q), helped by the fare increment from last year’s fare adjustment. The Downtown Line (DTL) reported a steady 467,000 daily ridership in 2Q19 with average fares for the rail line rising 7.7% or 5.2 cents y-o-y.
  • According to management, losses in the rail business have narrowed in the quarter although ridership for DTL is still someway off the targeted levels for steady state. While a fare hike for this year looks to be under consideration by the authorities, management also noted that maintenance costs will trend higher to keep up with rail reliability standards as the North-East Line (NEL) is into its mid-life cycle.

Taxi revenue dipped.

  • Taxi revenue was down 8.3% y-o-y and 2.9% q-o-q with weaker fleet sizes from Singapore and Australia. Taxi operating profit was down 6.6% y-o-y (1Q19: - 5.7% y-o-y).
  • The group is still looking to switch its fleet mix to the newer hybrid taxis which command a higher rental rate and are more fuel efficient. Currently, it has about 900 diesel-based taxis left.


STOCK IMPACT


Still largely status quo with new ride hailing regulation for now.

  • With the new regulation on ride hail licence for private hires slated to kickstart in Jun 20, operators have a more stringent safety requirement although fare charges will remain independently set with no new regulation on restricting fleet size and minimum driver age requirement for private hires.
  • The authorities have chosen to adopt a ‘light touch regulatory approach’ and we think ComfortDelGro’s taxi segment will still face challenges from the private hires though the decline in operating profits look to be stabilising.

Still integrating acquisitions, potentially on the lookout for further additions.

  • The group is still integrating its new Australian business with potential synergies such as IT processes yet to be reaped.
  • While ComfortDelGro is still on the lookout to add to its portfolio, management also noted that any further acquisitions, such as those in the eurozone may come with union workers or a smaller operating margin which may be a deterrence.


EARNINGS REVISION/RISK

  • We trim our 2019-21 net profit estimates by up to 4%, factoring in higher maintenance costs for the rail business and higher finance costs.


VALUATION/RECOMMENDATION

  • Maintain BUY with a lower target price of S$2.95, pegged to 19.5x 2020F PE, or 1SD above its forward mean PE. We think ComfortDelGro’s longer-term growth prospects are well sustained through public transport initiatives.


SHARE PRICE CATALYST

  • More earnings-accretive overseas acquisitions.
  • Regulatory changes in public transport.





Lucas Teng UOB Kay Hian Research | https://research.uobkayhian.com/ 2019-08-14
SGX Stock Analyst Report BUY MAINTAIN BUY 2.95 DOWN 3.080



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