ComfortDelgro – CIMB

Defensive earnings

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.

Dividends intact

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.

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