ComfortDelgro – Phillip
No fare adjustment this year
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.
• No fare adjustments for 2012
• Lost of bus revenue share to fleet introduced by government
• Cut estimates by 0.5%/2.6% for FY12/13E
• Maintain Buy with revised TP of S$1.65
What is the news?
Singapore’s Transport Minister updated on plans for the public transport system during the Ministry’s Committee of Supply (COS) debate. (See: Transportation Sector Update, dated 8 March 2012) The key implication for CDG is that there would be no fare revisions for 2012, implying that public transport fares for 2013 would be kept unchanged from current levels. Rail capacity would expand with more trains to be gradually injected into the system. Bus capacity would increase with the government retrieving its share of fare revenue from the 550 buses paid for by them.
How do we view this?
We reviewed our earnings forecasts to account for unchanged fares in 2013 (previous: +2.3%), but lifted fare adjustments in 2014 to 4.1% (2.3%+1.8%= 4.1%). Our fare adjustment for 2014 is on the premise that a substantial fare increase would be allowed, due to unchanged fares in 2013. Being the largest bus operator in Singapore, CDG’s subsidiary SBST would suffer from bus revenue share erosion to the 550 buses introduced by the government. With the new Quality of Service (QOS) standards requiring that bus loading be reduced from the current 95% to 85%, we believe that SBST’s bus business could sink deeper into the red.
We tweaked our forecasts down with the revisions made to our estimates for CDG’s public transport business in Singapore. However, with its geographical diversification, CDG is less affected by the changes in policy implemented in Singapore. We maintain our Buy recommendation with revised target price of S$1.65.