ComfortDelgro – OCBC

GOOD ENTRY POINT

  • Share price stabilising
  • Fundamentals unchanged
  • Time to pickup a high-quality counter on the cheap

Share price stabilising since stake sale

ComfortDelgro’s (CDG) is showing signs of stabilising after the partial stake sale by the Singapore Labour Foundation about a month ago (at its lowest, CDG fell by more than 20% from when the sale was completed). At this juncture, we believe that it is a good opportunity to pick-up a high-quality counter on the cheap and, potentially, on the rebound.

Fundamentals unchanged

Domestic challenges aside, the group’s overseas growth prospects, which have been its key growth driver, remain unchanged. As a recap, CDG recently made an acquisition for its UK operations that expanded its fleet size by 41% – along with additional service routes – and increased its market share to joint-second in the city. (This deal should become income accretive beyond FY13). In addition, CDG is in the process of tendering for additional bus routes in New South Wales (Australia) – as well as re-submitting its bid for its existing routes – and we are hopeful for positive results come Jul this year. More importantly, its UK and Australian bus segments are operated on a cost-plus model, which significantly limits its downside risks.

Positives from fare review delay

Although the Fare Review Mechanism Committee (FRMC) announced earlier in the month that it has delayed the submission of its findings by a few months, the likely outcome of a fare increase remains on track, in our view. Furthermore, the delay should be viewed as a strong political will to devise a fare review structure that will be sustainable and more beneficial to the public transport operators in the long-run, rather than a one-off fare increase to paper current deficiencies.

Time to accumulate

Given its recent share stability and unchanged fundamentals, we upgrade CDG to BUY with an unchanged fair value estimate of S$1.95.

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