ComfortDelgro – UOBKH

3Q07 operating profit driven by taxi operations

CD reported 3Q07 net profit of S$59m, up 15% yoy. This was driven by a 28% yoy surge in taxi operating profit.

UK and Australia bus operations were star performers. Turnover expanded 6% yoy to S$761m, on the back of strong contributions from overseas operations. The Group’s bus operations in the UK and Australia were the star performers, accounting for over 70% of the increase. UK bus business recorded a 12% yoy turnover expansion, due to higher quality incentive payments, contract rate adjustments and increased mileages operated at Metroline. Australia bus turnover jumped 45% yoy, with contributions from Toronto Bus Services which was acquired in Jul 07. Overseas operations accounted for 48% share of turnover, up from 3Q06’s 44% – close to CD’s mid-term target of 50% share of turnover from overseas. UK bus operating profit of S$23.9m was S$6.5m higher yoy, mainly due to write-back of provisions. Australia bus operating profit was 118% higher yoy.

Singapore bus operating profit fell sharply. SBST turnover was up 3% yoy mainly due to a 4% increase in average daily bus ridership to 2.24m rides and an increase in advertisement revenue. However, operating profit of S$8.1m was sharply lower than 3Q06’s S$14.4m due to higher repair and maintenance and depreciation costs.

Operating profit was up 14.4% or S$11.7m yoy to S$93m. Besides contributions from UK and Australia bus businesses, the taxi business was another key contributor, recording operating profit of S$34.4m, which is S$7.6m higher yoy. This was due to higher turnover, lower benefits paid to taxi drivers and lower depreciation.

CD continued to generate good operating cashflow. 9M07 operating cashflow of S$232.6m amounts to an annualised 15¢ per share. We believe CD’s ability to keep its operating cashflow at a high level is a positive, especially with respect to its ability to pay out more dividends.

BUY CD. Our target price of S$2.91 comprises a) S$2.70 value based on current land-transport ownership structure, which factors in a DCF valuation of the Singapore bus, rail and advertising operations (using 2.5% terminal growth rate and WACC of 6.9%) and PE valuation for the other businesses; and b) S$0.21 based on the assumption of restructuring of the Singapore land transport system to one-operator running all rail and bus services.

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