ComfortDelgro – Phillip

Within our expectations

FY10 revenue came in at S$3,206m (+5.1% y-y) while net profit was up 4.1% y-y to S$228.5m, both were inline with our expectations

Growth across all segments especially Australian Bus business

Forecasting revenues and net profits of S$3,285m and S$224m for FY11

Maintain Buy recommendation with fair value of S$1.81

FY10 results were inline with our estimates

Revenue was up 5.1% y-y to S$3,206.9m due to broad based growth across most segments especially the Australia bus business whose revenues increased by 35.1% y-y. Revenues could have been higher by S$51m but was affected by the weaker pound and RMB. Operating profit was up 11.0% due to the increase in revenue and smaller increases in operating expenses. Operating margin also improves to 12.1% from 11.5% despite the inflationary environment and high crude oil prices. Net profit came in at S$228.5m (+4.1% y-y). FY10 results were inline with our estimates; revenues were slightly higher than our estimates of S$3,205m and net profit was marginally lower than our estimates of S$230m. CDG also announces a final dividend of S$0.028 bringing the total dividends for FY10 to S$0.055 translating to a dividend yield of 3.5%.

Forecasting revenues and net profits of S$3,285m and S$224m for FY11

We are forecasting for revenues to come in S$3,285m and net profits of S$224m for FY11 due to the high inflationary environment and higher fuel and energy costs. Based on FY10 results, fuel and staff costs contributed about 43.5% of their total operating expenses. Furthermore public transport operators will not be able to increase their fares for the rest of the year as the fare revision exercise has been postponed to the 4th quarter of 2011. On the back of these factors, we are forecasting the net profit to come in at S$224m for FY11 which is 2% lower than that of FY10. Nevertheless, valuation for CDG still looks attractive at the current price.

Outlook for the rest of the year

Record tourism arrivals will continue to contribute strongly to the growth of its Singapore taxi business for FY11. Australia bus business will continue to improve as they increase the number of services, management also revealed that they are bidding for more services in Australia. Singapore rail and bus ridership will continue to improve with the improved connectivity of public transport and the high costs associated with owning a car.

Valuation and Recommendation

We are reiterating our Buy recommendation and fair value of S$1.81 on CDG to reflect the broad based growth across its entire business segment and its attractive valuation at the current moment. CDG is currently trading at a PE of 14.6X FY10 EPS as compared to SMRT which is trading at 19X FY10 which we think that CDG is very undervalued at the current moment. Our fair value translates to 17.3X FY11E EPS.

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