ComfortDelGro

Kim Eng on 15 May 2012

Decent set of 1Q results. ComfortDelGro’s (CDG) 1Q12 earnings of SGD 54 mil were in line with forecasts, given that this was a seasonally weak quarter. Encouragingly, revenue was 7% higher YoY due to growth from almost every business segment. It was also commendable that CDG managed to achieve a 7% higher operating profit YoY despite pressures of staff and fuel cost. We maintain our BUY recommendation, with Target Price unchanged based on its diversified business model which enables it to benefit from growth markets overseas.

Almost 50% of operating profit from overseas. Earnings derived from overseas operations comprised 49% of total operating profit (Figure 1), up from 41%, partially caused by the fact that its Singapore bus operations (SBS Transit) made an operating loss of SGD 4 mil excluding advertising and rental revenue. Despite challenges faced within the local public transport scene, especially with no mandated fare increases for 2012, we believe that its overseas operations can more than pick up the slack, as evidenced by current 1Q12 results.

Still buses and taxis leading the way. Figure 2 clearly shows that buses and taxi operations remain the key component of revenue growth, with revenue increases of 5% and 9% YoY respectively. On the profitability front, CDG’s bus profit growth was derived primarily from the UK (+SGD 4.9 mil) and Australia (+SGD 4.3 mil). In contrast, Taxi profitability improvement was derived mainly from China (+SGD 1.7 mil). From this perspective, CDG’s strategy of geographical diversification across its business segments seems to be paying off.

Multi-national transport operator - reiterate BUY. As a global transport operator within multiple modes of land transport, we believe that CDG will be one of the few transport operators with the ability to emerge profitably amidst the backdrop of escalating operating costs. Its near-term growth will likely be spearheaded by its overseas operations. Maintain BUY, with TP unchanged at SGD 1.85, pegged at 16x FY12 PER, 1 standard deviation above its historical mean.