ComfortDelgro – MayBank Kim Eng

Steady Profits In-line With Expectations

2Q13 steady, in-line with expectations. CDG reported another steady set of results with net income of SGD68.9m (+19% QoQ, +6% YoY) in 2Q13. Except for lower Auto Services sales due to the ongoing divestment of its car dealership business in China, top line growth was broad=based. With the stronger first half performance, the company declared higher interim dividend of 3.0cents (FY12: 2.9cents).

Strong UK bus contributions, Bus losses at SBST narrowed. Despite the relatively weaker GBP, its UK bus operations reported stronger EBIT due to improved margins on receipt of incentives in the quarter. With lower operating cost from favourable diesel hedges, core operating losses at the Singapore bus unit (SBS Transit) narrowed to SGD3.0m (2QFY12: -4.8m, 1QFY13: -5.4m). We believe that a potential change in business model for the Singapore bus operations could reverse sustained losses for the operators.

Weak rail profits to continue in near term. Excluding advertising and rental income, CDG’s rail operation slipped into the red as the unit incurs higher start up costs for Downtown Line (DTL) of c.SGD4m in the quarter. Excluding start up related expenses for DTL, the matured North East Line (NEL) turned in stable EBIT of SGD3.3m (2QFY12: +3.1m, 1QFY13: +3.6m). Management guided for incrementally higher rail operating expenses as they prepare for the opening of DTL stage 1 at the end of the year.

Optimistic on re-tender of bus operations in Australia. CDG participated in the re-tender for their existing Region 4 bus operations in Australia. While the potential loss of this key operating region is a near term stock risk, management sounded optimistic on the tender results that are expected to be announced within the next two months.

Maintain Buy with TP of SGD2.33 unchanged. We maintain our Buy rating on the stock as we believe that acquisition-led growth would continue to drive firm earnings over the coming quarters. Our TP of SGD2.33 is based on 18X FY14E P/E to capture full year contributions from its recent acquisitions.

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