Friday, 15 August 2014

ComfortDelGro

OCBC on 14 Aug 2014

ComfortDelGro (CDG) reported 2Q14 results which were within our expectations. PATMI rose 9.9% YoY to S$75.7m on the back of a 11.9% jump in revenue to S$1,016.3m. Its overseas operations continued to be its main growth driver. An interim dividend of 3.75 S cents/share was declared, higher than the 3 S cents/share declared in 1H13. With the exception of CDG’s Australia bus business which is expected to register a decline in revenue, management guided that its remaining business segments are expected to either maintain or increase their revenue ahead. We retain our forecasts given this set of in-line results. However, we increase our terminal growth rate assumption from 2% to 2.5% to take into account the more robust and sustainable long-term prospects of the bus industry in Singapore. Our DDM-derived fair value estimate is raised from S$2.56 to S$2.92. Maintain BUY on CDG.

2Q14 results within expectations
ComfortDelGro (CDG) reported 2Q14 results which were within our expectations. PATMI rose 9.9% YoY to S$75.7m on the back of a 11.9% jump in revenue to S$1,016.3m. The latter was underpinned by solid double-digit growth in its Bus (+18.4%) and Rail (+20.8%) segments. Although CDG continued to face challenging conditions in Singapore as it registered core operating losses in its bus and train operations (excluding advertising and rental income) amounting to S$3.6m, this was offset by positive growth in its overseas businesses. Its overseas operations constituted 50.7% of its 2Q14 operating profit although revenue contribution was only 41.2%. For 1H14, CDG’s revenue and PATMI increased by 10.6% and 9.8% to S$1,967.1m and S$139.0m, forming 49.7% and 49.5% of our FY14 forecasts, respectively. An interim dividend of 3.75 S cents/share was declared, an improvement from the 3 S cents/share declared in 1H13. This would be paid on 28 Aug. 

Most segments to see stable or positive revenue growth
CDG guided that the revenue for its Bus Station, Inspection & Testing Services, Car Rental and Leasing, and UK, Australia and Vietnam Taxi operations are expected to be maintained. With the exception of its Australia Bus business which is expected to record a decline in revenue, all other segments are expected to contribute positively to its topline. 

Maintain BUY
We retain our forecasts given this set of in-line results. However, we increase our terminal growth rate assumption from 2% to 2.5% to take into account the more robust and sustainable long-term prospects of the bus industry in Singapore, given the transition to a “Government gross cost contracting model”. Although there would be increased competition from the tendering process, we believe CDG’s extensive market knowledge and experience would enable it to maintain its dominant market share. Our DDM-derived fair value estimate is raised from S$2.56 to S$2.92. Maintain BUY.

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