ComfortDelgro – CIMB

Boosted by stronger A$

In line; maintain Outperform. 2Q10 core net profit of S$58.2m (+1.6% yoy) was broadly in line with our estimate (S$58.3m) and consensus, accounting for 26% of our full-year estimates. 1H10 earnings came in at S$112.5m (+2.5% yoy), accounting for 51% of full-year estimates. We maintain our earnings estimates. Our target price rises from S$1.64 to S$1.83 (WACC: 10.4%, terminal growth: 2%), after removing a 10% discount to our DCF valuation as we believe that currency risks have been priced in. Maintain Outperform on the back of an improving outlook.

Helped by stronger A$. 2Q10 group revenue was up 4.1% yoy to $789.3m thanks to growth in revenue from the bus, the taxi, rail, vehicle inspection and testing, driving centre, bus station and car rental and leasing businesses, offset by the decrease from the automotive engineering services business. Revenue growth was also boosted partially by a positive forex translation effect ($15.2m) thanks to a stronger A$, offset partially by weaker £ and RMB. Group operating expenses grew mainly thanks to higher fuel and electricity costs, higher cost of diesel for resale, higher staff costs, lower Job Credits in Singapore, higher payments to drivers for contract services and higher depreciation due to more new and replacement buses and taxis.

Operational review. 2Q10 bus revenue grew 5% yoy on higher revenue from Singapore due to higher ridership (+4.1% yoy) and higher Australia revenue due to the positive translation effect of the A$, offset by lower UK revenue due to the negative translation effect of the £. Taxi revenue grew 3.5% yoy thanks mainly to higher Singapore revenue due to larger operating fleet and higher volume cashless transactions, offset by lower overseas revenue. Despite the fare reduction, rail revenue was higher by 14.3% yoy thanks to higher ridership.

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