ComfortDelgro – DBSV

As stable as it can get

At a Glance

• 2Q10 net profit (S$58.2m) up a marginal 2% yoy, as expected

• Singapore bus ridership up 4% despite CCL opening – better than expected

• FY10-11F revised by 3% on higher bus ridership

• ComfortDelgro offers better value at 14.5x PE vs SMRT’s 19x, but no compelling catalyst; Maintain Hold, TP at S$1.65

Comment on Results

2Q10 net profit +2% as expected. 2Q net profit was up marginally by 2% y-o-y to S$58.2m, as topline grew 4.1% to S$789.3m mainly driven by Singapore bus, taxi and Australia bus operatations. Operating margins inched up to 12.6%, as operating expenses grew by smaller 3.9% vis-à-vis revenue. Bulk of increase in expenses came from fuel/energy (+22% yoy). Net profit showed a smaller growth of 2% on higher finance costs (S$8.6m, +18%) lower JV/Associates income (S$1.4m, -18%). A 2.7 S cts interim dividend was declared (1H09: 2.63 Scts), equating to 50% payout ratio.

More fuel hedges in place in 3Q (vs 2Q), but not beyond that. We understand that management had hedged c.50%/15% of Singapore/UK requirements in July/Aug and will look to put in more hedges.

Singapore bus ridership up 4%, despite CCL, better than originally expected. Despite the opening of the Circle Line Stages 1&2 on 17 Apr, Singapore’s bus ridership grew 4% yoy in 2Q. We think the cannibalization effect may not be as severe as originally feared. We are more optimistic on bus ridership, nudging our growth assumption to 4%, from 1.5% previously.

$38.8m Swan Taxis acquisition pending approval. The Group’s bid for Perth based Swan Taxis is awaiting approvals, expected in 4Q. We have not factored in potential contribution, but estimate this could add c.2% to FY11F profits, if it materialises.

Recommendation

More value in ComfortDelgro vs SMRT, but no compelling upside/catalyst. Maintain Hold, TP: S$1.65. Between the 2 land transport counters, we prefer ComfortDelGro over SMRT (FV, TP: S$1.88) given its more attractive valuation at c.14.5x PE vs SMRT’s 19x (FYE Mar’11). But, we do not see any compelling catalyst at current point to drive its share price, given the moderate growth in the ensuing quarters. As such, we maintain Hold, TP S$1.65 based on average of 15x PE and DCF.

ComfortDelgro – DBSV

As stable as it can get

At a Glance

• 2Q10 net profit (S$58.2m) up a marginal 2% yoy, as expected

• Singapore bus ridership up 4% despite CCL opening – better than expected

• FY10-11F revised by 3% on higher bus ridership

• ComfortDelgro offers better value at 14.5x PE vs SMRT’s 19x, but no compelling catalyst; Maintain Hold, TP at S$1.65

Comment on Results

2Q10 net profit +2% as expected. 2Q net profit was up marginally by 2% y-o-y to S$58.2m, as topline grew 4.1% to S$789.3m mainly driven by Singapore bus, taxi and Australia bus operatations. Operating margins inched up to 12.6%, as operating expenses grew by smaller 3.9% vis-à-vis revenue. Bulk of increase in expenses came from fuel/energy (+22% yoy). Net profit showed a smaller growth of 2% on higher finance costs (S$8.6m, +18%) lower JV/Associates income (S$1.4m, -18%). A 2.7 S cts interim dividend was declared (1H09: 2.63 Scts), equating to 50% payout ratio.

More fuel hedges in place in 3Q (vs 2Q), but not beyond that. We understand that management had hedged c.50%/15% of Singapore/UK requirements in July/Aug and will look to put in more hedges.

Singapore bus ridership up 4%, despite CCL, better than originally expected. Despite the opening of the Circle Line Stages 1&2 on 17 Apr, Singapore’s bus ridership grew 4% yoy in 2Q. We think the cannibalization effect may not be as severe as originally feared. We are more optimistic on bus ridership, nudging our growth assumption to 4%, from 1.5% previously.

$38.8m Swan Taxis acquisition pending approval. The Group’s bid for Perth based Swan Taxis is awaiting approvals, expected in 4Q. We have not factored in potential contribution, but estimate this could add c.2% to FY11F profits, if it materialises.

Recommendation

More value in ComfortDelgro vs SMRT, but no compelling upside/catalyst. Maintain Hold, TP: S$1.65. Between the 2 land transport counters, we prefer ComfortDelGro over SMRT (FV, TP: S$1.88) given its more attractive valuation at c.14.5x PE vs SMRT’s 19x (FYE Mar’11). But, we do not see any compelling catalyst at current point to drive its share price, given the moderate growth in the ensuing quarters. As such, we maintain Hold, TP S$1.65 based on average of 15x PE and DCF.

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