ComfortDelgro

DBS Group Research on 13 Feb 2013

Q4 2012 net profit increased by 2 per cent y-o-y to $57.6 million, ending FY2012 at a record profit of $248.9 million (up 6 per cent y-o-y), within our forecasts ($248 million).

Q4 revenue rose by 2 per cent, driven by all business segments, except bus station and automotive engineering in China.

Ebit margins dipped marginally to 10.6 per cent (Q4 2011: 10.8 per cent) as operating expenses rose by 2 per cent mainly from higher staff costs (up 6 per cent to $284.3 million) and contract services (up 12 per cent to $121.4 million), offset partially by lower materials and consumables (down 11 per cent to $79.8 million) and fuel and electricity costs (down 13 per cent to $64.3 million).

Management indicated that they have hedged 60 per cent and 40 per cent of its fuel requirements in Singapore and the UK, respectively. This should continue to provide visibility and stability to its earnings in 2013, as in 2012.

Final dividend of 3.5 Singapore cents was proposed (FY2012: 3.3 Singapore cents). Coupled with the interim dividend of 2.9 Singapore cents, this equates to a total payout of 6.4 Singapore cents (54 per cent payout ratio).

Capital expenditure requirements are projected to taper off in FY2014, and we remain hopeful that dividend payout could increase.

ComfortDelGro remains as our preferred land transport play given its stable growth profile, geographical diversification and strong balance sheet to pursue inorganic growth. Net debt to equity stands at 0.3 per cent, down from 2.2 per cent in FY2011.

Our target price is based on discount cash flow model and 15 times average FY2013/2014 PE estimate. This implies 16.3 times and 15.8 times PEs for FY2013 and FY2014, respectively, slightly above its historical average of 15 times, but significantly below SMRT's 22 times FY2014 PE.

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