ComfortDelgro – CIMB

Core business remained strong

Within expectations. 3Q08 core net profit of S$48.3m (-18.1% yoy) was within our estimate but ahead of consensus. 9M08 core net profit constitutes 76% and 80% of the respective FY08 estimates. Pretax margins slipped to 9.4% from 12.2% in 3Q07, but improved from 6.5% in 2Q08. Revenue growth of 5.6% yoy to S$804m was in line, driven by all segments though dented by the translation impact of A$ and ₤ revenue. Overseas operations made up 42% of revenue in 3Q08.

Reprieve from lower energy costs. Fuel and electricity costs rose by 38% to S$78.7m while materials & consumables rose 49% to S$90.2m. On diesel sales, a much lower operating loss of S$0.2m was incurred vs. S$11.3m in 2Q08 and S$6.3m in 1Q08. We expect these energy-related segments to perform better with retreating global energy prices.

Operational review. Bus revenue dipped 1.2% yoy to S$396.8m in 3Q08, due to the translation impact of a strong A$ and ₤ against S$. China and Singapore growth was led by higher ridership. Taxi revenue rose 2.7% yoy to S$238.2m, on increased cashless transactions in Singapore, strong China and Vietnam contributions and a larger overall fleet. Rail was up 25% yoy to S$28.5m on increased ridership; its operating profit rose 74% yoy to S$4m.

Outlook. The group is expected to maintain its performance, supported by ridership growth and steady vehicle inspection and automotive engineering businesses in Singapore, and continued growth in its China bus and taxi operations. However, management is cautious in view of volatile forex rates which have an adverse impact and weakness in the car leasing segment during this recession.

Forecasts adjusted; maintain Outperform. We adjust our FY08-10 forecasts by – 1.7% to +5.1% to reflect retreating energy prices, higher ridership and forex translation costs. We have also raised our WACC assumption to 11% from 9.3%, to factor in higher earnings risks due to volatile forex. Our new DCF-based target price falls to S$1.97 from S$2.28. Maintain Outperform on the back of an attractive dividend yield of 6.9%.

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