ComfortDelgro – AmFraser

Margin improvement despite higher fuel cost

• ComfortDelGro Ltd’s (CD) 2QFY10 results were in line with expectations. While net profit merely inched up by 2% YoY to S$58.2mil, we are encouraged by significant business segments in Singapore and overseas, which showed operational improvements.

• 2QFY10 results were dampened by depreciation of 9% YoY in the Pound Sterling and 4% YoY in Reminbi, but it benefitted from a 10% YoY appreciation in the Australian dollar.

• Singapore accounted for 57% of revenue and 62% of operating profit, Britain 22% and 12%, Australia 12% and 15%, and China 9% and 10%, respectively.

• Ridership in Singapore grew 4% QoQ for bus to 212.1 million and 3% QoQ to 37.4 million for rail operations in 2QFY10.

• Australia bus operations enjoyed increased services which led revenue in local currency up 22% YoY. Bus revenues in China and Britain were also buoyed in local currency terms.

• Singapore bus accounts for 19% of group revenue, Britain 18%, Australia 12% and China 2%. Rail – which comprises the North-East Line (NEL) and Sengkang and Ponggol LRTs in Singapore, made up 4% of group revenue.

• Singapore Taxi which made up 22% of group revenue, improved 9% YoY on a larger operating fleet and higher volume of cashless transactions.

• Overseas, China taxi revenues also improved in local terms, but this could not offset the fall in British taxi business – which is still mired in a depressed corporate market.

• Despite a 22% YoY jump in fuel and electricity costs to S$61.5mil (making up 9% of total expenses) largely on higher oil price, operating margin improved to 12.6% in 2QFY10 (versus 12.5% in 2QFY09 and 11.8% in 1QFY10). All other cost items were reasonably contained.

• On balance, we maintain our forecast for 4% YoY p.a. growth at 10.9 cents Singapore EPS in FY10F and 11.4 cents EPS in FY11F.

• PE stands at 14.4x FY10F and 13.8x FY11F. We maintain our BUY rating with 20% upside to fair value of S$1.89/share.

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