Thursday, 2 July 2015


OCBC on 2 Jul 2015

A series of positive developments within the Land Transport sector reinforce our view that ComfortDelGro will continue to enjoy its smooth ride into 2H15. There are three key things to note: 1) Downtown Line (DTL) phase 2 that was initially scheduled for opening in 1Q16 will now open ahead of schedule in Dec-15 (CDG’s management target breakeven on DTL between DTL phase 2 and phase 3), 2) adjustment to method of computing taxi availability standards, which we think allows greater flexibility for CDG to manage their taxi fleet, and lastly, 3) CDG’s announced intention to seek opportunities in London’s rail business. In our view, these three developments are positive and encouraging but did not come as a surprise. Hence, we keep our forecasts unchanged and maintain HOLD with FV of S$3.07.

DTL phase 2 will open in Dec-15
Initially scheduled to open in 1Q16, LTA recently announced that the Downtown Line phase 2 (DTL 2) will open ahead of schedule in Dec-15. DTL 2 comprises one depot and 12 stations, of which four are interchanges linking the DTL to the North-East Line, North-South Line, Circle Line and Bukit Panjang LRT, respectively. According to LTA, construction works for DTL 2’s stations are currently more than 95% complete, while Mechanical & Electrical installation works are in the final stages for all the 12 stations. Testing of train operations are also underway since Apr-15 and will continue into 3Q15. Recall that CDG’s management guided for breakeven on DTL between opening of DTL 2 and DTL phase 3. Hence, in our view, this is certainly a positive development for ComfortDelGro (CDG).

Positive change to method of computing taxi availability
Being the largest taxi operator in Singapore, CDG had been subject to LTA’s Taxi Availability standards (TA) since 2013. The two main criteria of the TA are meeting stipulated percentage of taxis: 1) on the roads during peak periods, and 2) minimum daily mileage of 250km. Previously, the TA were computed based on registered fleet, which does not account for each taxi company’s unhired fleet at any one time for valid reasons such as maintenance purposes. The new TA computation will thus be based on the company’s hired-out fleet, which more accurately measures the availability. We believe this change will ease pressures on taxi companies’ ability to meet the TA standards. While CDG has been the only one to consistently meet the criteria since the inception of the TA standards, we think this change is still positive as it provides greater flexibility for CDG to manage its fleet of taxis.

Seeking opportunities in London’s rail business
CDG’s recently announced intention to seek opportunities in London’s rail business is encouraging, seeing that management is taking actions in expanding CDG’s overseas businesses. As we think these recent developments are positive but not unexpected, we keep our forecasts unchanged. Maintain HOLD with FV of S$3.07.

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