ComfortDelgro – DMG

Overseas ops continue to support growth

1Q12 results in-line with our expectations. ComfortDelGro’s (CD) 1Q12 PATMI came in within our expectations at S$54m (-5% QoQ, +7% YoY) on the back of higher revenue of S$855m (-4% QoQ; +7% YoY) with operating margins flat at 10.9% (versus 10.8% EBIT margin for both 4Q11 and 1Q11 period). 1Q12 PATMI made up 21.3% of our full year estimate. Amidst this difficult period for domestic bus and rail operators that are facing cost pressures, we continue to favour CD who has displayed strength in its overseas business, with 1Q12 overseas EBIT up 27% YoY to S$46m and contributing 49% to total EBIT. Maintain BUY with TP of S$1.75 based on DCF (WACC: 9.3%; TGR: 1.5%).

Growth in bus business came from overseas. 1Q12 Singapore (SG) bus EBIT fell 63% YoY to S$2.8m. Performance remained lacklustre as high fuel, staff, and repair and maintenance costs continue to compress margins. CD has commented that 40% of its FY12 fuel costs for SG and UK have been hedged. Despite SG bus ridership growth of 4.2% YoY in 1Q12, we continue to foresee a difficult domestic bus operating environment should cost pressures persist while average fares remain depressed. On the other hand we remain positive on CD’s overseas bus operations in which 1Q12 EBIT grew 41% YoY to S$30m.

DTL costs start creeping in, but not the key concern for rail. 1Q12 rail EBIT fell 49% YoY to S$3.9m due to higher repair and maintenance, and electricity costs. Stage 1 of Downtown Line (DTL) is expected to be completed by 4Q13, and CD has since hired additional 40-50 staff for DTL. Headcount for DTL is expected to increase throughout the year and is targeted to hit additional c.180-200 staff before DTL commences operations. However, DTL staff cost increases are not a major concern for us given that the new hires will largely be lower level staff. Moreover rail operations accounted for just 7% of overall FY11 EBIT.

Valuations attractive. At FY12 P/E of 12x, CD remains relatively more attractive than SMRT’s 16x FY13 P/E (FYE Mar). CD’s widespread overseas network allows it better overseas growth prospects which we view as a strong advantage.

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