ComfortDelgro – DB

2Q10 results in line, higher rail, bus and taxi contribution

2Q10 results in line with expectations and consensus. 2Q10 earnings rose S$58m (+2% YoY) with growth mainly from continued ridership momentum in rail/bus in Singapore (SG), improvement in operating environment in SG taxi and increase in bus services in Australia (Aust). We expect 2H10 earnings to be stronger due to continued ridership growth momentum in bus/rail and overseas contribution. CD remains positive on rail in SG, bus operations in Aust/SG and sees improvement in taxi business in SG.

Australia driving bus growth, fuel cost partially hedged. 2Q10 bus revenue +5% YoY and 4% QoQ to S$400m on the back of strong performance in Aust (+34% YoY to S$91m) and SG (+4% YoY to S$152m), partially offset by UK (-8% YoY to S$140m) due to weaker pound. 2Q10 EBIT +7% YoY and 14% QoQ to S$38m underpinned by growth from Aust (+37% YoY to S$16m), partially offset from SG, UK and China bus ops due to higher fuel costs. We expect 3Q10 CD’s bus ops to see a QoQ improvement underpin by higher ridership, increase in bus services in Australia and lower fuel costs as CD has hedged about 25% of its fuel requirements for 3Q10 at slightly below US$70/bbl.

Strong growth from rail and taxi business. Rail revenue in 2Q10 grew 15% YoY and 5% QoQ to S$33m aided by ridership growth. EBIT for rail grew 43% YoY and 11% QoQ to S$7m on the back of higher efficiency. Taxi revenue saw a 4% and 1% QoQ increase to S$239m, mainly due to the growth in SG taxi ops. EBIT grew 12% YoY and 22% QoQ to S$32m due mainly to higher fleet size and low idle rate at its taxi ops in SG.

CD remains our preferred land transport stock as a defensive low-beta play and we expect the stock to outperform the market if there is a pullback. Award of DTL is likely to be in the 2Q11 as the tender for the submission of bids has been delayed to 4Q10. Buy.

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