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ComfortDelGro - Taxi Business Risks Now Lower

Shared By Stock Fanatic on Monday, August 13, 2018 | 13.8.18

Maintain NEUTRAL, new SGD2.35 TP from SGD2.20 TP offers 1% downside. CD offers a healthy 4.6% dividend yield and has well-priced in organic growth in its public transport and taxi businesses, as well as the upside from multiple bite-sized acquisitions. With no fresh details on its private-hire car business plans in Singapore, its taxi business remains at risk from likely increased competition from Grab as well as the arrival of new players in Singapore. Read More

1H results below expectations. ComfortDelGro’s 1H profit of SGD141m accounted for 43%/45% of our and consensus estimates. Higher maintenance costs and higher fuel expenses were the key reasons for the earnings miss. While most of fuel cost increase is indexed, ie CD will get compensated for it eventually, managing a fleet of older buses in Singapore and an aging North East MRT line, implies maintenance costs will remain high in the near term.

Acquisitions supported revenue growth. The SGD48m YoY increase in revenue was aided by a SGD66.1m increase in public transport and SGD20.4m from acquisitions made in Australia and Singapore. This more than offset the SGD31.6m decline in taxi and SGD10.7m drop in engineering businesses. While revenue contribution from acquisitions was significant, their contribution to EBIT was smaller. This should improve as CD works towards better integration of the acquired assets to its business operations.

Public transport the key growth driver. In 2Q, CD’s public transport business booked YoY and QoQ growth in revenue and EBIT. Margins expanded, as well. This was due to a better-than-expected performance from its public bus contracts in Singapore and contributions from bus assets acquired in Australia and Singapore. Public transport business will continue to drive growth for CD, with the commencement of the new Bukit Merah bus contract in 4Q18 and contributions from its acquisition of FCL, a bus business in New South Wales, Australia. This is despite continuing losses being reported by its Singapore rail business, which CD now expects to break even only by 2Q19 or 3Q19.

Technical Analysis
Daily Chart
Looking to grow taxi fleet. The decline in CD’s taxi fleet in Singapore was arrested, as 12,750 taxis in the fleet as at end 2Q18 was unchanged QoQ. The taxi utilisation level was unchanged QoQ, at 2%. Taxi margins improved YoY as CD disposed idle taxis. Although some part of QoQ margin improvement was attributed to Singapore, it also included a one-off contribution from China. CD has ordered 1200 new taxis in Singapore, of which 200 will be delivered in Aug 18 and the rest in 2019. A sizeable portion of these new taxis will be used to replace old taxis as CD estimates net fleet addition of only 300-400. CD expects new taxis to improve rentals, given that hybrid taxis cost higher than the diesel taxis that are planned to be phased out.

Maintain NEUTRAL. CD’s taxi business, which has seen some improvement and accounts for c.30% of its EBIT, remains at risk if competition from private hire car business intensifies. At 15.3x forward P/E, the stock is trading close to its 5-year average forward P/E of 16.3x. The increase in TP was due to a markto-market adjustment in the risk-free rate for our DCF-based valuation.

Source : RHB Research
(Read Report)

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Posted on Monday, August 13, 2018 | 13.8.18
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