ComfortDelgro – CIMB
Overtaken by cyclicals
• In line. 1Q09 net profit of S$52.5m (+4.6% yoy) was in line with consensus and our annualised estimates, forming 23-24% of the respective FY09 estimates. Revenue slipped 4.4% yoy to S$716.6m, mainly due to a negative translation effect from £ and A$ of S$50m. Operating expenses of S$635.1m fell 5.7% yoy with declines in almost all items except for insurance premiums, taxi drivers’ benefits and others. 1Q09 pretax margin of 11% was better than 1Q08’s 9.9% on strong cost control. Overseas operations contributed 40.3% of revenue, down from 44.5% a year ago.
• Operational review. Bus revenue dipped 8.6% yoy to S$347.9m, due to the translation effect of a weak A$ and ₤ against the S$. However, growth came from rail (+12% yoy), bus stations (+15% yoy), automotive engineering (+14%) and vehicle inspection (+10%). Taxi and diesel sales dropped 2.3% yoy and 6.8% yoy respectively. EBIT margins improved to 11.4% from 10% in 1Q08 on improved diesel sales and rail segments.
• Outlook. Management guided that its performance should be maintained, although Singapore bus operations are expected to be weaker on fare reductions and higher transfer rebates. However, the weaker £ and A$ could be a drag on UK and Australian operations. Management remains cautious in view of the downturn, and potential further weakness of the A$ and ₤, and will further tighten costs and credit controls.
• Downgrade to Neutral from Outperform. We maintain our FY09-11 forecasts. Given receding risk aversion, defensive stocks like CD are unlikely to outperform the market. We have applied a 25% discount to our DCF valuation of S$1.84 to account for forex risks. We arrive at a new target price of S$1.37 (previously S$1.84, WACC 11.2%), supported by a prospective CY09 dividend yield of 4.5%.