ComfortDelgro – OSK DMG

Steady As She Goes

ComfortDelGro (CD) reported strong 1Q13 PATMI that grew 8% y-o-y to SGD58m. 1Q13 earnings accounted for 22.1% of our full year estimates, which were in-line with our expectations. We maintain our BUY rating and TP of SGD2.20 based on DCF (WACC: 9.0%; TGR: 2.5%). CD remains our pick within the land transport space for its 46% overseas operating profit exposure and more attractive valuations.

Another strong quarter of broad based growth. CD’s 1Q13 EBIT grew 3% to SGD96m due to growth across the board, which was partially offset by weakness from Singapore and UK bus, as well as Singapore rail operations. Singapore bus remained subdued with higher staff, repair and maintenance and depreciation costs, while Singapore rail was weak due to higher staff costs largely from the DTL start up. UK bus EBIT fell 17% y-o-y to SGD9.2m due to a declining GBP and lower Metroline revenue from a difference in billing cycle timing.

Ridership growth appears to be moderating. Bus average daily ridership grew 2.3% in 1Q13 while rail average daily ridership rose 6.4% for the same period. This compares to the 4.2-7.6% run rate for bus and 9-16.8% run rate for rail, for the same periods in the last two years. Though it may be too early to classify this as a trend, slower ridership growth is a negative for land transport operators. However, we are not overly concerned for CD given its large overseas exposure and its intention to target for overseas profit contribution to hit the 50% level (from current c.45%).

Share price has run up but stock still offers value. At FY13 P/E of 16.6x, CD remains more attractive than SMRT’s 25.0x FY14 P/E (FYE Mar). We like CD for its widespread overseas network which allows it better overseas growth prospects – something we view as a strong advantage given the challenging domestic land transport market.

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