ComfortDelgro – DBS

Fuelled by fuel

• Strong operating profit performance (S$94.5m, +82% yoy) in 2Q on lower operating expenses
• Revenue dipped -4% yoy to S$758m; flat if excluding negative translation of GBP/AUD
• Expect strong growth momentum to continue into 3Q
• Maintain Buy, TP raised to S$1.83 equating to 17% upside.

A strong quarter – within expectations. As expected, operating profit registered a strong growth of 82% yoy to S$94.5m, from S$52m, on lower operating costs, largely fuel and electricity costs. This is despite revenue falling 4% to S$758.3m on lower fares and ridership in Singapore, coupled with a weaker GBP and AUD against 2Q08. The negative translation impact of GBP and AUD was S$34.2m; revenue would have been flat excluding that impact. Excluding the exceptional gain in 2Q08 (S$26.5m), net profit would register a growth of 89% to S$57.3m. An interim dividend of 2.63Scents has been declared

Expect to see continued growth in 3Q. We should also continue to see good yoy growth continuing into 3Q09, albeit at a slower rate, on lower operating expenses, particularly fuel costs. The strengthening of GBP and AUD by 14% and 20% since Jan 09 should also bode well for the Group on a sequential basis.

Maintain Buy, TP raised to S$1.83. We raised our forecasts by 2.7% in FY09F and 9.1% in FY10F as we adjust our exchange rate assumptions, coupled with lower operating expenses. We continue to like ComfortDelGro for its diversified geographical presence and its ability to deliver stable growth in these testing times. We raised our TP to S$1.83 as we peg it to a blend of PE and DCF basis (see pg 4, table 2). This equates to an implied PE of 16.8x, 1.7x P/B and EV/EBITDA of 5.7x on our FY10F forecasts, which we believe is not excessive.

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