May 15, 2019

ComfortDelgro (CD) reported a net profit of S$70.4m which gained 6.2% yoy on the back of 7.8% growth in revenue for the quarter. Growth was mainly led by robust gains in the public transport segment, with new acquisitions contributing S$5.4m or 46.2% of the increase in operating profit. 1Q19 operating profit margin improved slightly to 11.3% from 10.9% in 1Q18.

The business generated a strong 30.4% growth in operating profit at $55m in 1Q19, lifted by income from two bus packages that commenced last year as well as contributions from acquisitions made last year. The segment also benefited from increasing rail revenue following a 4.3% fare adjustment effective Dec 18 and higher ridership across all 3 rail lines – DTL, NEL and LRT. Looking ahead, CD is maintaining a positive revenue growth outlook in the segment across both Singapore and Australia businesses.

Management is likely to put more effort into integrating the acquired entities within the Australian bus business from here on, thus the size of acquisitions ahead is not likely to supersede the S$470m amount in FY18, in our view. YTD, CD has so far made a A$28.3m acquisition for B&E Blanch. Nonetheless, we expect the Australia business to continue to deliver growth on the back of full-year contributions from new acquisitions.

Taxi operating profit was down 6.3% to S$28m as a result of weaker overseas segments in China and the U.K. Management cited challenges in China which included attracting more two-shift drivers. Over in Singapore, taxi operating profit was apparently stable, supported by on-going replacement of older models to newer hybrid taxis that fetch higher daily rents to offset the continuous decline in operating fleet size. Idle rate was raised to 3.7% as at end-Mar 19 amid keen competition from ride-hailing firms for drivers.

We trim our FY19-21F EPS forecasts by 0.6-1.7%, resulting in a lower DCF-derived TP of S$2.82 (WACC: 7.6%; LTG: 2%). Our TP implies 18x FY20F P/E. CD is currently at 16.4x FY20F P/E, along with 4.6% dividend yield. Key re-rating catalysts could come from affirmed growth in taxi earnings and further clarity on new regulatory framework governing taxi and ride-hailing firms. Downside risks include intensifying competition in its taxi business. Maintain Add with lower TP of S$2.82 – CGS CIMB 

ComfortDelgro closed at: S$2.52