ComfortDelgro – CIMB

Overseas growth

Below. 2Q08 core net profit of S$30.8m (-47.4% yoy) was below consensus and our expectations. 1H08 net profit constitutes 38% and 40% of the respective annualised estimates. The variances were: higher energy and fuel costs, costs of materials and consumables, and diesel subsidies. Pretax margins slipped to 9.9% from 11.1% in 2Q07. Revenue growth of 6.2% yoy to S$785m was in line, driven by all segments. Including an exceptional item of S$26.5m relating to Cabcharge, net profit was flat at S$56.8m. Overseas operations were 44% of revenue in 2Q08. An interim dividend of S$0.026 was declared.

Plagued by fuel. Fuel and electricity costs rose by S$31m while an operating loss of S$11.3m was incurred on the sale of diesel to taxi hirers in Singapore. For Singapore bus operations under SBST, revenue rose 6.2% yoy to S$141.3m on higher ridership, but there was an operating loss of S$3.1m on account of higher fuel costs compared with a S$9.4m profit a year ago.

Operational review. Bus revenue rose 3.1% yoy to S$393.5m in 2Q08, driven by overseas operations. Australia revenue was up 30% due to the indexation of contract revenue, additional mileage operated and increased charter work. China and Singapore growth was led by higher ridership. UK Metroline was weaker by 6.6% yoy as a result of a weaker sterling pound against the S$. Taxi revenue rose 3.6% yoy to S$237.2m, on increased corporate billings and higher cashless transactions in Singapore and strong China contributions. UK operations slipped 13.3% yoy to S$57.2m on lower corporate bookings and a weaker pound vs. S$. Rail was up 16% yoy to S$26.8m on increased ridership; its operating profit rose 42% yoy to S$3.7m.

Forecasts adjusted; maintain Outperform. To reflect higher-than-expected fuel costs for FY08, we have cut our core net profit forecast for FY08 by 19.2%. However, we raise our FY09-10 estimates by 3.7-4.6% to factor in less-volatile fuel costs. Following this, our DCF-based target price rises to S$2.16 from S$2.09, on an unchanged WACC assumption of 9.3% and terminal growth of 2%. Maintain Outperform on the back of an attractive dividend yield of 5.5%.

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