ComfortDelgro – Phillip

Slightly below expectations

Company Overview

ComfortDelGro Corporation (CDG) is a land transport conglomerate with businesses across various business segments and geography. The bus and taxi businesses are the largest profit contributors for the Group.

Net income increased 3.1%y-y

Higher fuel expense, staff cost & depreciation expense resulted in a 0.4ppt decline in EBIT margin

Final DPS of 3.30cents proposed

Maintain Buy with revised TP of S$1.66

What is the news?

CDG announced a 6.4% and 3.1% increase in sales and net income for the year. However, margin pressures from higher fuel expense, staff cost and depreciation expense resulted in a 0.4ppt decline in EBIT margin. While revenue continue to increase sequentially, 4QFY11 net profits fell by 18%q-q, due to a c.S$10mn decline in operating profits for both the taxi and bus businesses. Final dividends of 3.30cents proposed, translating to a full year payout ratio of 53.3%.

How do we view this?

The results for the year were slightly weaker than expected. Key variances from our 4QFY11 estimates were 1) Operating losses of S$5mn at SBST’s bus business; 2) c.3.4% decline in average passenger rail fare; 3) operating losses at China’s bus business. Looking ahead to FY12E, we believe that rail business would likely register a decline in margins as the company increase staff headcount in preparation for the launch of Downtown Line (DTL) at the end of FY13E.

Investment Actions?

We revised our forecasts down by 7.9-11.4% for the next 2 years and lowered our target price to S$1.66 based on 15X FY12E EPS. CDG remains undervalued at the current market price. Maintain Buy.

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