ComfortDelGro Corp

DMG & Partners Securities on 11 July 2012

SBS Transit has announced that it will be adding 1,000 new buses from January 2013 to 2015 at a cost of S$433 million. This announcement does not come as a surprise as the additions to the fleet are part of ComfortDelGro's fleet renewal programme which started in 2006. Our capital expenditure assumption of S$500 million for FY2012 has factored in this increase in bus fleet. We think near-term earnings impact could be minimal as current bus operation losses for ComfortDelGro account for about 1.5 per cent of overall earnings before interest and taxes (Ebit).

Moreover, this scheme will be rolled out over a span of a few years. Therefore, any earnings impact is expected to be spread out. Maintain "buy" on ComfortDelGro, with target price of S$1.75.

SBS Transit has also commented that close to 90 per cent of its bus fleet will be new by 2015, and its fleet size is expected to increase by about 13 per cent to 3,400 buses, which will be its largest to date. Out of the 1,000 new buses, 260 will be funded under the Bus Services Enhancement Programme, while SBS Transit will fund the remaining 740.

During the Singapore Budget in February 2012, it was announced that the government will increase public bus fleet by 800 buses over the next five years, and of the total 800 buses, 550 (69 per cent) will be funded by the government while the remaining 250 (31 per cent) will be provided by the public transport operators.

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