ComfortDelgro – CIMB
In contrast to its peer SMRT’s profit deterioration, ComfortDelGro turned in solid 1Q numbers characterised by mild revenue growth and stable margins. Management’s reaffirmation of its 50% dividend payout ratio was music to our ears in light of SMRT’s dividend cuts.
1Q13 net profit met expectations at 23% of our FY13 forecast and 22% of consensus. We keep our Neutral rating, EPS forecasts and target price (DCF, 7.3% WACC) unchanged. The stock lacks rerating catalysts, but is supported by a 3% dividend yield.
Lower energy costs offset cost inflation elsewhere
ComfortDelGro benefitted from lower energy costs in 1Q13, a trend which we expect to persist throughout the rest of the year. 1Q13 revenue inched up by 2% on broad-based growth. Lower energy costs (-13% yoy) helped to offset higher staff costs (+5.1%) and contract services expenses (+8.0%), supporting an 8% growth in net profit. The group has hedged 60-70% of its diesel needs and 70% of electricity needs for 2013 at unit costs below that of last year, providing some relief from escalating operating cost inflation.
DTL start-up costs weigh on rail margins
The group’s EBIT margin was stable at 11.0% in 1Q13 vs. 10.9% in 1Q12. The rail segment’s EBIT margin declined by 2.9%pts to 7.5% due to start-up costs incurred for the Downtown Line, but this was offset by stronger margins from diesel sales.
In contrast to its peer SMRT’s dividend cuts, CD remains committed to its 50% payout policy. The group is free-cash flow positive and does not expect significant increases in capex this year. At 3.0%, CD’s dividend yield is superior to that of SMRT’s 1.7% yield.