ComfortDelgro – DBS
• 3Q10 +10% yoy, above our expectations on better revenues from Bus and Taxi and lower costs
• FY10-11F earnings raised by 4%-6%
• Upgrade to Buy, TP raised to S$1.79 with 26% total return; potential DTL contract win and improving ops should propel share price
3Q above expectations, a record net profit quarter. 3Q net profit grew by 10% yoy to S$61.4m on the back of 5% topline growth to S$823.4m. This was slightly above our expectations on the back of a better-than-expected bus and taxi revenue contribution and slower growth in costs. Operating expenses increased by a slower clip at 3.7% vis-à-vis topline’s 5%, resulting in improvement in operating margin to 12.9% in 3Q10 (3Q09: 11.6%).
Time is right to get onboard; upgrade to Buy. We are upgrading our recommendation to Buy as we see near to medium term catalysts for ComfortDelgro. These include: (i) ComfortDelgro is the likely candidate to clinch the DTL contract; (ii) Singapore operations to benefit from better public transport network; (ii) UK ops upturn looks sustainable; (iv) Australia should continue to show robust growth; (v) undemanding valuations of 12.5x PE vs SMRT’s 17.5x (FYE Mar 12).
Raised forecasts by 4%/ 6%, see more upside than down. We raised our FY10F/ 11F forecasts by 4%/ 6% as we factor in (i) contributions from recently completed acquisition of Swan Taxis in Perth; (ii) higher revenue contributions from Singapore taxis arising from its higher rental/ expanded fleet. Consequently, we raised our TP to S$1.79 (26% upside) on the back of our earnings revision and as we roll our PE/ DCF valuation to FY11F, from blended FY10F/11F. Key risk to our recommendation is surge in oil price.