ComfortDelgro – CIMB
Growth from overseas
• Fuel concerns. While costly fuel is a concern for regulated public-transport companies like CD in Singapore, CD is able to pass through higher fuel costs in its overseas bus operations. Domestically, an application for a fare hike has been made. We also expect a review of diesel subsidies for its Singapore taxi operations.
• Public transport ridership is up. Escalating petrol and diesel prices, more ERP gantries as well as increased ERP charges are forcing more private cars owners to take public transport. Monthly ridership for both rail and bus is encouraging, reflecting a positive shift in commuter behaviour towards public transport.
• Overseas business to drive the group. Management aims to raise its overseas revenue from 50% to 70% within the next 5-7 years. With this new target, we could reasonably expect growth to be spurred by possible M&As, as well as organic growth of its bus operations in the UK, Australia and China, supported by taxi operations in the UK and China.
• Forecasts and target price cut; but maintain Outperform. We lower our FY08-10 core net profit forecasts by 6-17% to factor in much higher diesel prices. However, dividend yield is attractive at 6% and valuations appear reasonable. Our DCF valuation prices the stock at S$2.09 (previously S$2.32) using an unchanged WACC of 9.3% and terminal growth rate of 2%.