ComfortDelgro – DMG

Business as usual; earnings in-line

4Q09 results in-line with expectations. ComfortDelGro registered 4Q09 PATMI of S$54.1m, up 20.8% YoY (-2.7% QoQ). 2009 PATMI of S$219.5m (+9.7%) was 98.5% of our full year forecast of S$222.8m (consensus S$219.7m). 4Q09 revenue rose 3.4% YoY to S$794.3m despite negative translation effect of the weaker £ and A$. In tandem with the rise in revenue, operating profit rose 15.4% to S$83.0m as operating expense growth was capped at 2.2%. Not for the negative foreign currency translation effect, the increase in operating profit for FY09 would have been S$358.9m (+29.1%). Maintain BUY with a DCF-derived target price of S$1.78. 

Has rail cannibalised bus ridership? In 2009, NEL rail ridership rose 5.9% to 0.37m (2008 growth: 15.4%). This is in contrast with the 1.3% fall in bus ridership. While management pointed out that the decline in bus ridership was due to poor economic conditions, we believe the overlapping of inter-town bus service routes with MRT lines will continue to draw more bus commuters towards rail, due to the relatively faster journey times. We expect the cannabilisation process to continue with rail ridership growing by a stronger 10% in 2010 underpinned by tourism growth. In contrast, we expect bus ridership to decline by 2%. 

Key takeaways from analyst briefing. Management expects: 1) Singapore bus revenue to decline in 2010 (we believe this is in view of fare reduction and weaker ridership); 2) bus revenue from Australia to improve with additional services while bus business in China will grow with higher ridership; 3) taxi revenue growth in Singapore, China and Vietnam to remain unchanged in 2010; and 4) revenue from UK operations to continue to be impacted by currency translation losses. 

At its mid range of its 13-17x trading band. A final dividend of 2.67¢ was declared on top of its interim dividend of 2.63¢ paid earlier (representing a payout ratio of 50%). ComfortDelGro trades at 14.5x FY10 P/E multiple, which is at its mid-range of 13-17x trading band. Our DCF-derived TP of S$1.78 has an implied P/E multiple of 16.5x.

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