ComfortDelgro – CIMB

Meeting challenges head-on

• Slightly above expectations. 4Q08 net profit of S$44.8m (-6.3% yoy) was marginally above our estimate but ahead of consensus. FY08 net profit of S$200m was 2.3% and 6.4% higher than our forecast and consensus respectively. This was mainly due to lower-than-expected operating expenses in 4Q08. FY08 pretax margins slipped to 9.7% from 11.2% in FY07, but were steady yoy at 9.6% in 4Q08. Revenue fell 1.7% yoy to S$760m, led by forex translation of A$ and ₤. Overseas operations contributed 43% of revenue in FY08. A final tax-exempt dividend of S$0.024 was declared.

• Operational review. Bus revenue dipped 0.3% yoy to S$1,533m in FY08, due to the translation impact of a weak A$ and ₤ against S$. However, strong growth came from rail (+22.1% yoy), diesel sales (+31.9% yoy), automotive engineering (+40.3%) and vehicle inspection (+16.5%). Excluding the negative forex translation impact of S$140m, revenue would have risen S$244m (+8.2% yoy). A positive translation of S$133m from operating expenses mitigated this. The net forex translation impact for the group was a manageable loss of S$7.1m.

• Outlook. We expect CD to maintain its performance, supported by bus and rail ridership growth in its key markets; bus and taxi operations; the bus station business in China; and steady vehicle inspection and automotive engineering businesses in Singapore. The UK taxi business is expected to weaken while diesel sales should decline on lower selling prices. Management remains cautious in view of potential further weakness of the A$ and ₤, and will further tighten cost and credit controls.

• Forecasts adjusted; maintain Outperform. We adjust our FY09-10 forecasts by +4.2% to -5.5% to reflect retreating energy prices, higher ridership and forex translation. We also introduce FY11 forecasts. Due to our earnings changes, our DCF-derived target price falls to S$1.84 from S$1.97 on an unchanged WACC of 11%. Management guided for a minimum 50% dividend payout and no special dividends for FY09, translating to a prospective CY09 dividend yield of 4.4%. Maintain Outperform on the back of its defensive earnings.

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