ComfortDelgro Corporation Limited’s (CD) 3Q12 results exceeded consensus estimates (revenue -2.8%; PATMI +13.9%). Revenue grew 2.7% YoY to S$900.8m while a smaller than expected increase in operating expenses saw operating profit improve by 2.8% YoY to S$116.8m. As a result, PATMI rose 5.4% YoY to S$72.8m. While pressures on operating expenses are expected to remain on increasing staff costs and higher repair and maintenance work, we deem these pressures to be manageable in light of the fuel hedges in place for FY13. Similarly, although the Group will face operating challenges in certain key markets i.e. Australia, China, we remain confident in management's ability to navigate these bumps along the road. Raising our FY13 forecasts accordingly, our valuation increases from S$1.53 to S$1.60. Maintain HOLD.
3Q12 results exceed expectations
ComfortDelgro Corporation Limited’s (CD) 3Q12 results exceeded our and consensus estimates. Although revenue came in within 1% and 2.8% of the respective estimates to S$900.8m (+2.7% YoY) on the back of higher ridership figures, a smaller than expected increase in operating expenses saw operating profit improve by 2.8% YoY to S$116.8m. PATMI correspondingly rose 5.4% YoY to S$72.8m, which exceeded our and the street’s forecasts by 17.4% and 13.9% respectively.
Pressures on operating expenses manageable
Despite an uptick in operating expenses (+2.7% YoY to S$784m), CD's operating margin for the quarter remained stable at 13% from a year ago. While the bulk of the increases were related to higher staff costs and greater emphasis on repair and maintenance works - and looks set to continue with additional headcount required for the Downtown Line - CD's fuel hedges for its diesel and electricity needs in 4Q12 and FY13 will help to offset some of these increases.
Some challenges ahead
CD should end the year on a good note given the manageable operating expenses. However, going forward, the Group will face some competitive pressures in certain markets. For instance, bus routes in Sydney, New South Wales are now open to competitive bids and the Group has since lost bids on routes in two existing regions. Similarly, CD had recently announced a taxi-JV in Guangzhou but contributions to operating profit could take a little longer with the unique regulatory environment.
Maintain HOLD at higher valuation
In light of CD’s 3Q12 results, we revised our 4Q12 and FY13 forecasts upwards accordingly. We remain optimistic for a decent fare increase in Singapore in FY13, and confident in management’s ability to grow its operations despite the operational challenges ahead. Keeping our 50% dividend/PATMI payout ratio, our valuation increases from S$1.53 to S$1.60. Maintain HOLD.
ComfortDelgro Corporation Limited’s (CD) 3Q12 results exceeded our and consensus estimates. Although revenue came in within 1% and 2.8% of the respective estimates to S$900.8m (+2.7% YoY) on the back of higher ridership figures, a smaller than expected increase in operating expenses saw operating profit improve by 2.8% YoY to S$116.8m. PATMI correspondingly rose 5.4% YoY to S$72.8m, which exceeded our and the street’s forecasts by 17.4% and 13.9% respectively.
Pressures on operating expenses manageable
Despite an uptick in operating expenses (+2.7% YoY to S$784m), CD's operating margin for the quarter remained stable at 13% from a year ago. While the bulk of the increases were related to higher staff costs and greater emphasis on repair and maintenance works - and looks set to continue with additional headcount required for the Downtown Line - CD's fuel hedges for its diesel and electricity needs in 4Q12 and FY13 will help to offset some of these increases.
Some challenges ahead
CD should end the year on a good note given the manageable operating expenses. However, going forward, the Group will face some competitive pressures in certain markets. For instance, bus routes in Sydney, New South Wales are now open to competitive bids and the Group has since lost bids on routes in two existing regions. Similarly, CD had recently announced a taxi-JV in Guangzhou but contributions to operating profit could take a little longer with the unique regulatory environment.
Maintain HOLD at higher valuation
In light of CD’s 3Q12 results, we revised our 4Q12 and FY13 forecasts upwards accordingly. We remain optimistic for a decent fare increase in Singapore in FY13, and confident in management’s ability to grow its operations despite the operational challenges ahead. Keeping our 50% dividend/PATMI payout ratio, our valuation increases from S$1.53 to S$1.60. Maintain HOLD.
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