ComfortDelGro - DBS Research 2019-08-14: Tracking At Half-time, Though Not Compelling To Opt In


ComfortDelGro - Tracking At Half-time, Though Not Compelling To Opt In

  • ComfortDelGro's 2Q19 results within expectations with net profit at S$75.9m.
  • Public transport offsets weaker taxi contribution.
  • Interim DPS of 4.5 Scts declared.
  • HOLD and Target Price of S$2.59 maintained.

What’s New

2Q19 within expectations, net profit up by 1.2% while revenue rose 4.2%.

  • In 2Q19, COMFORTDELGRO CORPORATION LTD (SGX:C52) posted net profit of S$75.9m (+1.2% y-o-y) while revenue reached S$980.8m, an increment of 4.2% y-o-y. This was driven mainly by contribution from its Public Transport segment and new acquisitions (S$46.2m, S$44.6m net of FX).
  • As per the trend in 1Q19, it was offset partially by FX translation impact of S$17.4m, mainly on weaker GBP and AUD, against SGD.
  • 1H19 profit at S$146.3m (+3.5% y-o-y) accounts for 46% of our FY19F estimates, similar to last year.

Operating margins relatively flat at 11.7% vs last year.

  • Acquisitions were the main contributors to the group’s operating profit growth for the quarter, which amounted to S$8.3m. Group operating margins stayed relatively flat at 11.7%, from 11.6% a year ago. The improvement arose largely from its Public Transport segment, which we believe was due to new bus contracts in Singapore (Seletar and Bukit Merah packages), acquisitions and lower losses from rail. Public Transport segment margins reached 8.7% vs 8.1% in 2Q18.
  • Group operating costs rose by 4.1% y-o-y, a tad lower than top line, resulting in a 5% y-o-y increase in operating profit to S$115m. This was, however, negated partially by higher finance costs and taxes, resulting in net profit (after minority interests) growth of 1.2%.

Interim DPS of 4.5 Scts per share.

  • An interim dividend of 4.5 Scts (1H18: 4.35 Scts) was declared, equating to a payout ratio of 66.6%, similar to 1H18. See ComfortDelGro's dividend history.
  • The ex-dividend date will be on 20 August and is payable on 28 August 2019. See also upcoming dividend dates.
  • We continue to expect FY19F payout ratio of c.75%, similar to FY18.

Public Transport remains as main profit contributor.

  • The segment continues to be the main contributor to group operating profit, accounting for 55% of the total. Segment revenue grew by 8.4% y-o-y to S$723.5m (+S$53.3m), of which S$10.7m (+1.6%) was from existing business, with the remaining S$42.6m from acquisitions.

Rail ridership growth continues, with lower losses.

  • Ridership for its rail line continued to improve with Downtown Line (DTL)’s average ridership up by 6.9% to 467,000/day. At its more matured line, North-East Line (NEL), ridership reached 588,000/day, an improvement of 1.6% y-o-y.
  • Management indicated that rail operations continue to incur losses, though smaller compared to a year ago, helped by higher fares and ridership.
  • Management indicated that revenue should continue to be higher in FY19 but cautioned that costs would ncrease on the back of increased repairs and maintenance costs.

Taxi segment sees continued keen competition.

  • Taxi revenue dropped by 9.6% y-o-y to S$166.9 largely on the back of smaller fleet size in Singapore. Based on LTA data, ComfortDelGro’s fleet has contracted to c.11,800, down by c.6% from December 2018. Management indicated that competition remains keen and idle rate has crept up slightly to c.4%. This is not surprising to us given the increase in private car rental fleets in Singapore. Management shared that fleet renewal into hybrid taxi models (from diesel models) would continue given drivers’ preference and would aid in mitigating declines in revenues on the back of higher rental rates.

Focus on reaping benefits of acquisitions.

  • As can be seen in the prior few quarters, acquisitions have contributed to the group’s overall bottom line. While management continues to seek targets, it appears to be cognizant of not overstretching and ensuring that the deals are reaping benefits.
  • In addition, management indicated the need to carefully ensure that potential targets meet its margin and return criteria, among others.

Our views

Maintain HOLD and forecasts; FY19F growth at 4%.

  • ComfortDelGro’s 1H19 profit stands at c.46% of our FY19F estimates. We maintain our forecasts and are projecting earnings growth of 4%/ 3% for FY19F/ 20F; and keep both our HOLD recommendation and Target Price of S$2.59.
  • ComfortDelGro shares are trading at 18x/17.4x FY19F/20F PE which are around their 5-year historical average. As per our earlier report, we do not envisage an earnings upgrade at this juncture to warrant re-rating and expect ComfortDelGro’s share price to remain relatively range bound, supported by a 4.2% yield (75% payout).
  • While the market is looking out for public transport fare increase in Singapore to boost profitability for its rail operations, we believe the positive impact could be limited to Downtown Line and partially negated by cost increases.

Andy SIM CFA DBS Group Research | https://www.dbsvickers.com/ 2019-08-14
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.590 SAME 2.590