ComfortDelGro Corp - Resilient operational trends


■ 3Q15 results come in above our estimates

■ Near-term operational trends across key segments remain resilient

Reaffirm Buy (1) rating; raising target price to SGD3.55

What’s new:
ComfortDelGro (CDG)’s 3Q15 results, which beat our estimates, reveal resilient near-term operational trends across its key business segments, leading us to reaffirm our Buy (1) rating on the stock.

What’s the impact:
CDG reported 3Q15 net profit of SGD85.2m (up by 5.4% YoY) on the back of a 1.0% increase in revenue and a 0.4pp YoY change in its operating margin. While overall 3Q15 revenue was in line with our expectations, net profit beat our estimate by 5.2%, due mainly to betterthan-expected operating margins in its bus and taxi segments.

In CDG’s bus segment, UK bus revenue (up 5.7% YoY) was a positive surprise, boosted by favourable currency movements, as well as positive operational trends (increases in contracted service levels and new routes) which led to a better-than-expected operating margin overall.

Meanwhile, even as the rail segment’s operating-margin trend disappointed, revenue continues to be robust. 3Q15 rail revenue rose by 7.3% YoY, driven by a strong increase in average daily ridership trends across all its current network lines. With the opening of DTL Stage 2 on track for 27 December, management said the near-term margin is likely to remain depressed, but it expects ridership growth to increase dramatically, with the opening of an additional 12 stations.

Despite ongoing market concerns over private car-hire services, revenue growth of CDG’s taxi segment continued to be healthy (up by 2.5% YoY), driven by key markets Singapore (+2.8% YoY) and China (+6.3% YoY), in line with our expectations. Looking ahead, we expect the segment to remain resilient; regulatory restrictions on such private car-hire apps have already been proposed in China and London. Management said it believes that the Singapore government is likely to follow suit in the near term, which we view as a positive catalyst for the stock.

Technical Analysis
Daily Chart
What we recommend:
Overall, we raise our 2015-17E EPS by 0.2-3.3% after incorporating the better-than-expected margin trend. Driven by our earnings revisions, we raise our DCF-based 12-month target price to SGD3.55 (from SGD3.46). We reaffirm our Buy (1) rating. We continue to like CDG for its quality exposure to the defensive transport services sector, as well as a potential 2015E dividend yield of 3%. Unfavourable regulatory policies represent the biggest risk to our positive view.

How we differ:
We believe the attractiveness of a new contracting model in CDG’s Singapore bus segment could be under-appreciated by some in the market. (Read Report)

Read Related Reports
1) ComfortDelGro - Awaiting a more comfortable ride by DBS Group Research, published on 16 November 2015

2) ComfortDelGro - 3Q15 within expectations‏ by OCBC Investment Research, published on 16 November 2015

3) ComfortDelGro Corp Ltd - Taxi business unscathed by Phillip Securities Research, published on 16 November 2015

4) ComfortDelGro - 9M15 Slight Ahead But Growth Is Priced In by RHB Research, published on 16 November 2015

5) ComfortDelGro - Uber & Grab: cannot shake it off by CIMB Research, published on 15 November 2015

Source : Daiwa Capital Markets

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