ComfortDelgro – CIMB

Weak sterling and bus ridership

• In line. 2Q09 net profit of S$57.3m (+0.9% yoy) was in line with consensus and our annualised estimates, with 1H09 net profit forming 49-50% of the respective FY09 estimates. Revenue slipped 4.0% yoy to S$758.3m, mainly due to a negative translation effect of S$34.2m from a weak £. Operating costs of S$593.7m fell 11.8% yoy with declines in almost all items except depreciation and repairs and maintenance. 2Q09 pretax margin of 11.9% was better than 2Q08’s 9.8% on lower fuel and energy prices and excellent cost control. Overseas operations contributed 44.3% of revenue, up from 43.8% a year ago. Interim dividend was 2.63 Scts.

• Operational review. Revenue growth was broad-based, with increases coming from the bus business in Australia, China and the UK, taxi and bus station operations in China as well as taxi, vehicle inspection and testing, rail, automotive engineering and driving centre businesses in Singapore. Bus revenue dipped 3.9% yoy to S$380.4m, due to temporary fare reductions and higher transfer rebates in Singapore, lower ridership and the translation effect of a weak ₤ against the S$. However, growth came from rail (+2.5% yoy), bus stations (+13% yoy), automotive engineering (+27.5%) and vehicle inspection (+7.2%). Taxi and diesel sales dropped 2.8% yoy and 26.6% yoy respectively, the latter due to lower fuel prices and sales volumes. EBIT margins improved to 12.5% from 6.3% in 2Q08 on lower overall costs.

• 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 £ could be a drag on its sizeable UK operations. Management remains cautious in view of the fragile economic climate and would maintain its tight control on costs, receivables and cash flows.

• Maintain Neutral. We maintain our FY09-11 forecasts. With more stable currencies, we have reduced our DCF valuation discount to 10% from 25% (to account for forex risks). We arrive at a new target price of S$1.64 (from S$1.37, WACC 11.2%). CY09 prospective yield is 3.7%.

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