ComfortDelgro

OCBC on 14 Aug 2012

ComfortDelgro announced a 5.7% YoY increase in revenue to S$1.7b on the back of broad-based growth across all but one segment and better overseas performance. We do not anticipate any surprises for CD in 2H12 and expect revenue to continue its broad-based growth across its various segments. In addition, any corresponding increases in operating expenses will be controlled i.e. through fuel hedges and effective management. As for CD’s current price valuation, we deem the recent strength and resilience as a reflection of the market’s desire for safe and stable yields given uncertain global economic climate. We stand by our conservative payout assumption of 50% of PATMI for our dividend-discount model as CD has consistently paid dividends of around 50-53% of its PATMI over the past four years. Leaving our earnings estimates unchanged, we maintain HOLD at S$1.53.

1H12 results met expectations
ComfortDelgro Corporation Limited’s (CD) 1H12 results threw up no surprises with top and bottom-lines forming 49% and 50% of our FY12 estimates respectively. Revenue grew 5.7% YoY to S$1.7b on the back of broad-based growth across all but one segment and better overseas performance while PATMI climbed higher by 7.7% YoY to S$118.5m despite increases in operating expenses (+5.8% YoY; S$1.5b) following higher headcount and fuel consumption. CD also announced an interim dividend of 2.9 cents per share (versus 2.7 cents over prior corresponding period).

Resilient taxi segment & stellar Aussie bus operations
CD’s taxi segment remained the key driver for the group (1H12 revenue/operating profit contribution of 31.6%/34.5% vs. 48.1%/33.7% for bus). In addition, growth from its Australian bus segments (1H12 operating profit +19% YoY to S$42.6m) – as a result of additional services operated – helped to negate the weaker SG bus performance. Australia now accounts for approximately 63% of CD’s bus operating profits with only a 27% revenue share as compared to SG operations’ 38% revenue contribution and meagre 6.7% of operating profit share.

2H to yield no surprises
We do not expect any surprises for CD in 2H12. Revenue will continue to experience broad-based YoY growth in 2H12 following increases in bus/rail ridership in Singapore, operations of additional bus routes in Australia and higher cashless transactions from the taxi segment while operating expenses will rise in a controlled manner through effective management (most of CD’s fuel and electricity needs have been hedged into 2013 and anticipated headcount increases will be minimal).

Maintain HOLD
Since our initiation report back in 23 May, CD’s share price has remained resilient and above our fair valuation target of S$1.53. While we agree that CD is a strong and stable company and that its strength and attractiveness lie in 1) CD’s qualities as a defensive play and 2) its consistent dividend paying theme, we deem that current valuations are a reflection of the market’s desire for safe and stable yields especially given the uncertain global economic climate. As our current valuation method is based on a dividend-discount model, and CD has consistently paid dividends of around 50-53% of its PATMI over the past four years, we feel that our conservative payout assumptions of 50% of PATMI is justified. Noting CD’s in line results, we leave our earnings estimates unchanged. Maintain HOLD at S$1.53.