ComfortDelgro – CIMB

Lifted by stronger A$

In line; maintain Underperform. 1Q10 core net profit of S$54.3m (+3.4% yoy) was broadly in line with our estimate (S$54.0m) and consensus. We maintain our earnings estimates. Our target price remains S$1.73 (WACC: 10.4%, terminal growth: 2%), still applying a 10% discount to our DCF valuation to account for forex risks. We maintain Underperform given a lack of catalysts. We continue to prefer SMRT to CD given that SMRT should be a bigger beneficiary of the opening of integrated resorts in Singapore, as it has larger train operations.

Helped by stronger A$. Group revenue was up 7% yoy to $766.9m thanks to growth in revenue from the bus, the taxi, automotive engineering services, rail, vehicle inspection and testing and driving centre businesses offset by declines in the car rental and leasing and bus station businesses. Revenue growth was also boosted partially by a positive forex translation effect ($11.9m). Group operating expenses grew mainly thanks to increases in staff costs, payments to drivers for contract, depreciation with more new buses, fuel and electricity costs from higher consumption, vehicle leasing charges from more vehicles leased in Australia and Ireland and higher materials and consumables from more vehicles sold.

Operational review. Train revenue rose 4.6% yoy thanks to higher average ridership (+12.1%) for the North-East Line offset by the temporary fare reduction. Bus revenue was up 8.8% yoy mainly due to higher Australia bus revenue thanks inclusion of revenue from CDC Victoria and a favourable forex translation effect due to the stronger A$. Taxi revenue was higher 5.0% yoy due mainly to a larger operating fleet and an increase in cashless transactions in Singapore.

Outlook. We believe that the outlook remains challenging for the group as bus ridership will be affected by the opening of SMRT’s Circle Line and fare-based revenue will be impacted by the fare reduction of 2.5% come July. The group has also guided for its UK bus business to be affected by the weaker £.

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