ComfortDelgro – CIMB

Defensive diversified earnings

Within expectations. 4Q07 core net profit of S$50.1m (+4.2% 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. FY07 core net profit of S$223m (+10.1% yoy) was also within consensus and our estimates, with a reported EPS of S$0.1073. There was an exceptional item of S$42.1m on FY06 relating to the share exchange in Cabcharge Australia. Operating revenue rose 7.9% yoy to S$2.98bn, with overseas operations contributing 47% of the group, up from 45% in FY06. A tax-exempt final dividend of S$0.0265 was declared.

Bus segment continues to be boosted by overseas operations, turning in revenue growth of 11.9% yoy to S$1.54bn in FY07 on higher ridership and SBS Transit and Shenyang ComfortDelgro Bus and from the implementation of new services at Shenyang ComfortDelgro Anyun Bus, and higher mileages operated by Metroline at better rates and more services as Cabcharge.

Taxi revenue grew 5.9% yoy to S$917.3m in FY07, mainly due to larger operating fleets in China (Chengdu, Nanning and Jilin), more taxi call bookings in Singapore and more corporate jobs in the UK. Contributions also came from new taxi business in Nanjing and higher taxi advertising income in Singapore. Operating profit in FY07 rose 12.4% yoy to S$121.2m. Rail operations performed well, with revenue up 18.2% yoy to S$90.5m on increased ridership. Operating profit at S$9.2m was a significant improvement from S$0.6m in FY06.

Maintain Outperform and higher target price of S$2.57. As we roll forward into FY08, we adjusted our FY08-09 forecasts by 3-4% and introduce our FY10 forecasts. Our DCF valuation derives a target price of S$2.57 on a higher WACC assumption of 9.3% (vs 8% previously) to reflect a higher cost of equity. The stock is well-supported by its attractive dividend yield of 7%.

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