ComfortDelgro – DMG

If not for negative currency translation, revenue would have expanded

ComfortDelgro reported 1Q09 net profit of S$52.5m, up 4.6% YoY, in line with our expectations.

Revenue contraction due to negative currency translation effect. Revenue contracted 4.4% YoY to S$716.6m. If we strip out the negative translation effect of the GBP and A$ of S$50.1m, revenue would have risen 2.3% YoY. Overseas revenue accounted for 40.3% of total revenue, versus 44.5% in 1Q08.

Operating profit of S$81.5m was 7% higher YoY. Stripping out the negative foreign currency translation, operating profit would have been 11.2% higher.

Australia bus operating profit up due to recent acquisition. Singapore bus revenue contracted 0.4% YoY due to a 0.3% YoY fall in 1Q09 average daily ridership. However, operating profit from this segment was up 6% YoY due to lower fuel costs. Whilst London bus revenue and operating profit were down due to the weaker GBP, Australia bus operating profit was up 11% YoY due to the acquisition of CDC Victoria since its 23 Feb 09 acquisition.

Taxi revenue was down 2% YoY due to weakness for the UK taxi business, but partly offset by increases in the Singapore and China taxi businesses. But taxi operating profit was down 11% YoY.

Whilst the Singapore bus fare reduction effective 1 Apr 09 will lower Singapore bus revenue, we expect Australia bus revenue growth and YoY declines in fuel costs to contribute to overall net profit growth. We are assuming FY09 average crude oil price of US$59/bbl, versus FY08’s US$105/bbl. After factoring in the hedges made by ComfortDelgro, we forecast a 37% decline in FY09 fuel costs. The weakening of the GBP and the A$ started in Sep/Oct 08 and hence the negative currency translation effect should diminish by 4Q09.

Our S$1.78 target price is derived from sum-of-the-parts valuation. Share price catalysts include our forecast 32% recurring net profit increase for FY09, and an attractive FY09 dividend yield of 4.7% (based on a 55% payout ratio).

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