ComfortDelGro - Complacency in this rally; D/G SELL

■ Lofty valuation has reflected positives from bus transition.

Market is complacent on three fronts: 

1) threats to taxi business; 

2) sale of bus assets not a given; 

3) weakening AUD.

D/G to contrarian SELL from HOLD, cut TP to SGD2.70 (17x FY16E PER) from SGD2.90.

Upside priced in…
Trading at a lofty 23x PER and 2.8% yield, we believe CDG has priced in upside from the impending transition at its Singapore bus business. It is also trading at a hefty 60% premium to the market (vs 3% premium since end-2008). CDG’s stub value (stripping out SBST and VICOM) has also surged despite no material positives for the rest of its business. It even outperformed SBST since end-2013.

…and market is complacent on three fronts:
We believe the market is complacent on three fronts.

1) Threats to the taxi business (31% of sales, 34% of EBIT). We expect the growing presence of Uber to pose a structural threat to its taxi business. Regulators in Singapore appear to be adopting a lighttouch and we expect taxi rentals to be under pressure.

2) Sale of its bus assets to the government is logical, but it is not a given. Market expects a potential windfall from the sale of its bus assets but this is not a done deal. While it is logical for the government to buy its bus assets, it has never announced a decision on this. A leaseback is still possible. The government will be cautious not to be seen as giving private entities a large handout, especially with the General Elections looming.

3) Impact of weakening AUD (10% of sales, 16% of EBIT). The AUD has already depreciated by c.7% on average from last year (SGD/AUD: YTD15 - 1.06 vs 2014 average- 1.14) and our Maybank FX Research team expects this weakness to be sustained with 1Q16 forecast of 1.03.


Technical Analysis
Daily Chart
Downside risks. Lowering TP to SGD2.70. D/G SELL
We lower our FY15-17E EPS by 0.9%/4.7%/7.4% and roll forward to 17x FY16E EPS (0.5SD above its 10-year average). We lower our TP to SGD2.70 (from SGD2.90) and downgrade to SELL from HOLD. (Read Report)

Source : Maybank Kim Eng Research

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