ComfortDelgro – DBSV

Slowly but surely delivering

  • A record 3Q12 net profit – within expectations
  • EBIT margins remained stable despite cost challenges
  • Trades below historical average even with YTD share price appreciation of c.19%
  • Maintain BUY, TP: S$1.86. Preferred land transport counter over SMRT

3Q12 within expectations. 3Q12’s net profit reached a record of S$72.8m, which was up by 5.4% y-o-y, on the back of a 2.7% growth in revenue to S$900.8m. Revenue growth was broad-based driven, by all business segments except Automotive Engineering. 9M12 profits account for 77% of our FY12F forecasts, roughly in line with previous year (1H11 76% of FY11).

EBIT margins remained at 13%. EBIT margins remained at 13% even though the group operates in a higher cost environment. This was helped by mainly lower material and consumables (-10.6%) and energy & fuel (-6.2%), offset by higher staff costs (+5.9%), contract services (+14.5%) and repair & maintenance (+8.1%). Management has hedged a substantial portion of its energy and fuel needs into FY13.

Preferred land transport counter, Maintain BUY with TP of S$1.86. We continue to like CD for its stable earnings growth profile, geographical diversification despite challenges for its bus business in Singapore and start up costs for rail (DTL). We expect its diversification to aid in buffering the impact from weaker segments. Despite rising by c.19.4% YTD, the counter still trades -0.5 std dev below its historical average of c.15x, and is preferred over SMRT which trades at a higher c.18x FYE Mar14 PE. We also believe it has the ability to further increase its dividend payout ratio (FY11: 53%), and should be a catalyst for the stock price should this materialis. We are currently assuming a conservative payout ratio of only 55% in our forecasts.

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