ComfortDelgro – DB

Key takeaways from meeting with management

We hosted a group meeting for investors with the CFO and IR of CD today. Below are several key takeaways from the meeting:

1) Central planning has been delayed as the government is having consultations at the grass roots level. LTA could start to amend the bus routes in 2H09 but has not revealed plans as to how the bus industry will be deregulated.

2) CD expects its bus routes to be unaffected by the opening of Circle Line. Bidding for Downtown line has been postponed till next year and mgmt believes that they stand a good chance of winning given their prior experience operating a driverless system.

3) Question on the 41% YoY jump in insurance costs in the 1Q09. Mgmt replied that this was due to a change in the formula of calculating its insurance from burning cost (back-end loaded) to a fixed cost formula in 2009. On an annualized basis, CD’s cost of insurance would only have increased by 3.7% YoY.

4) CD has kept its hedge on its diesel and electricity costs at 50% in FY09E at an average cost that is 30% lower than the actual cost in 2008 (average price of oil was US$99/bbl in 2008).

5) Overseas operations continue to see growth. CD can benefit from long-dated fixed operating bus contracts in Australia and UK. Bus and taxi operations in China continue to perform well. However, its taxi call centre in the UK has been affected.

Maintain Buy on CD with TP of S$1.75. We remain comfortable with our earnings forecast as the company can continue to benefit from resilient ridership, moderating costs and higher overseas contribution. The stock has been an underperformer and is trading at a 25% discount to the market PE, below its long term average which is at a 22% premium to the market. We expect the stock to outperform the market if there is a pullback.

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