ComfortDelgro – CIMB

A walk in the park

Within expectations. 3Q07 net profit of S$59.0m (+15% yoy) was within consensus and our expectations, with revenue growth driven by all its business segments, especially its overseas operations in the UK, China and Australia. 9M07 net profit was S$172.9m, up 12.0% yoy and was 73% of our FY07 forecast.

Operating expenses in 3Q07 were S$678.4m, up 5.3% yoy, attributable to higher staff costs, contract services, repair & maintenance, vehicle leasing charges and insurance & accident compensation. Materials & consumables declined 15% yoy to S$60.8m while taxi drivers’ benefits fell 29.1% to S$16.6m. Energy costs rose modestly by 5.2% yoy to S$57.1m, aided mainly by fuel hedging. Operating profit grew 14.4% yoy to S$93.0m on the back of good financial management.

Bus segment continues to be boosted by overseas operations, turning in revenue growth of 10.6% yoy to S$401.3m in 3Q. Operating profit rose 12.6% yoy to S$41.0m, on writeback of provisions in the UK operations, and improved rates, increased charters and maiden contributions from recently acquired Toronto Bus Services. Singapore bus operations posted lower operating profit of S$8.1m due to higher repair & maintenance, depreciation, staff costs and higher GST. Turnover and operating-profit mix from overseas bus operations was 62.7% and 80.2% of group bus operations, respectively.

Taxi revenue grew 6.0% yoy to S$230.7m, mainly from Singapore and UK. However, operating profit was higher by 28.4% yoy to S$34.4m, on higher rental rates in Singapore and China, and maiden contributions from newly acquired Flightlink and Computer Cab.

Rail operations continued to support growth momentum, with an operating profit of S$2.3m, up from S$0.3m in 3QFY06, supported by higher average daily ridership for the North-East Line and Punggol and Sengkang LRT lines.

Other segments. Driving school and vehicle inspection and testing operations continued to post good revenue growth of 15.3% yoy, while automotive engineering, diesel sales and car rental operations remained relatively stable.

Maintain Outperform and target price of S$2.38. On our unchanged DCF valuation (WACC 8.0%, terminal growth 1%), our target price remains S$2.38. The stock should be well-supported by its attractive dividend yield of over 5%.

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