ComfortDelgro – OCBC

COMFORTING RESULTS BUT RICH VALUATIONS

  • FY12 within expectations
  • Domestic fortunes turning
  • But upside already mostly priced in

FY12 closes on a positive note

ComfortDelGro’s (CD) FY12 results came in within our expectations with revenue increasing 3.9% YoY to S$3.5b while operating profit improved 3.3% YoY to S$412.3m as the group managed to keep a lid on operating expenses during the period. With PATMI rising 5.6% YoY to S$248.9m, management declared a final dividend of 3.5 S cents (FY11: 3.3 S cents), taking the total dividend declared for the year to 6.4 S cents (FY11: 6.0 S cents). As a percentage of PATMI, the payout ratio rose marginally by 0.7ppt to 54%.

Look forward to fare increases

A long overdue fare increase will likely materialise by the middle of 2Q13, and this will help to alleviate pressures on operating margins for CD’s domestic segments. Coupled with the continued growth in bus and rail ridership – albeit at a slower pace – we expect the two segments to post more encouraging results in the coming quarters.

Has time to adapt to changes in overseas landscape

The loss of the two Australian bus routes will only take effect in Sep 2013 so the impact to CD will be more significant from FY14. In the absence of tender dates for its two remaining services, management has some lead time to adjust its approach although it has signalled its willingness to accept lower margins. That said, the relatively new tender process also opens up opportunities for the group to expand its footprint into other regions.

Allocation to defensive sectors has benefited CD

YTD, CD’s share price has appreciated by ~7%, benefiting largely from a combination of improving prospects and a greater emphasis on defensive qualities. Although our fair value increases to S$1.95 (from S$1.90) after we adjust our PATMI payout ratio to 52% (from 50%), much of the upside has already been priced in. Downgrade to HOLD on valuation grounds.

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