ComfortDelgro – DBSV

1Q results within expectations

At a Glance

1Q11 results within our expectations

Margins lower on oil price, staff costs – as expected

Higher oil prices already factored in our forecasts

Maintain Buy and S$1.86 TP

Comment on Results

Results in line. Results for 1Q11 were within our expectations. Revenue grew by 4.7% y-o-y to S$803m while net profit declined 7.7% to S$50.1m. Revenue was driven by growth in all business segments especially from taxi, bus and rail, while the fall in earnings was a result of higher operating costs.

Higher operating costs weighed on margins, but within expectations. EBIT margin was 1ppt lower at 10.8%, dragged by higher oil prices, staff costs, lower average bus fares and currency translation losses. Higher oil prices resulted in increase of fuel and electricity costs (+18%), and diesel resale costs in material & consumables expenses (+26%). Staff costs (+4%) were higher as Job Credits ceased and increased staff hiring in Australia. Daily ridership for Singapore bus and rail increased by 7.6% and 17.3% y-o-y, but this was partially offset by a lower average fares due to distance-based fares. Balance sheet strengthened as net debt improved from 6.1% in 4Q10 to 4.4% in 1Q11, which continues to put the Group in a good position to pursue acquisitions.

Higher oil prices already factored in our forecasts. CD will continue to benefit from higher ridership and taxi fleet in Singapore. Management continues to hedge 20% of fuel requirements monthly. We have already factored in an average oil price of US$105/bbl in our forecasts, which is still above the YTD average price, despite the recent volatility. Successful bid for the Downtown Line may serve as a longer-term catalyst.

Recommendation

More attractively valued than SMRT, Maintain Buy TPS$1.86. We continue to like CD for its more attractive valuation and geographical diversity it offers in the land transport sector. CD currently trades at 13.6x FY11F PE compared to SMRT’s 18x FY11F PE. Our TP of S$1.86 is based on 15x FY11F PE and DCF (WACC 10%, t=1%).

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