ComfortDelgro – DBS

Positioning for the long term

4Q/FY08 net profit were within expectations. But, a lower dividend payout at 52% versus past 4 years was a surprise. It seems like management is conserving cash for acquisitions, which should be beneficial over the long term, given its track record. Maintain Buy, TP: S$1.57.

4Q/FY08 results in line. Headline net profit of S$200m (- 10% y-o-y) were within our expectations. Revenue grew 4% to S$3.1bn but operating profit dipped 17% to S$278m largely on higher fuel costs (+33% y-o-y, S$69m), material and consumables (+33%, S$82m) taxi drivers’ benefits (+16% y-o-y, S$10m) but mitigated slightly by lower staff and vehicle leasing costs.

Final dividend of 2.4cents below expectations. The Group declared a final dividend of 2.4cents, equating to a 52% payout, which was below our expectations of 70% and the range in the last 4 years (75% – 85%). We think management is conserving cash for overseas acquisition opportunities, particularly in Australia and China. Singapore 2009 Budget yields S$35m savings. The recent Budget measures will yield S$35m for the Group and will be passed on as rebates and the widely anticipated fare reductions later this year. We do not expect the fare reduction to have a significant impact on the Group’s bottomline.

Maintain Buy; TP: S$1.57. Whilst the market may be disappointed by a lower dividend payout versus its historical average, we think this may be beneficial for the Group in the long-term if they are able to deliver on accretive acquisitions to reinforce its overseas growth. We maintain
our Buy recommendation with a TP: S$1.57 based on 15x FY09F earnings.

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