Month: February 2009
ComfortDelgro – CIMB
Meeting challenges head-on
• Slightly above expectations. 4Q08 net profit of S$44.8m (-6.3% yoy) was marginally above our estimate but ahead of consensus. FY08 net profit of S$200m was 2.3% and 6.4% higher than our forecast and consensus respectively. This was mainly due to lower-than-expected operating expenses in 4Q08. FY08 pretax margins slipped to 9.7% from 11.2% in FY07, but were steady yoy at 9.6% in 4Q08. Revenue fell 1.7% yoy to S$760m, led by forex translation of A$ and ₤. Overseas operations contributed 43% of revenue in FY08. A final tax-exempt dividend of S$0.024 was declared.
• Operational review. Bus revenue dipped 0.3% yoy to S$1,533m in FY08, due to the translation impact of a weak A$ and ₤ against S$. However, strong growth came from rail (+22.1% yoy), diesel sales (+31.9% yoy), automotive engineering (+40.3%) and vehicle inspection (+16.5%). Excluding the negative forex translation impact of S$140m, revenue would have risen S$244m (+8.2% yoy). A positive translation of S$133m from operating expenses mitigated this. The net forex translation impact for the group was a manageable loss of S$7.1m.
• Outlook. We expect CD to maintain its performance, supported by bus and rail ridership growth in its key markets; bus and taxi operations; the bus station business in China; and steady vehicle inspection and automotive engineering businesses in Singapore. The UK taxi business is expected to weaken while diesel sales should decline on lower selling prices. Management remains cautious in view of potential further weakness of the A$ and ₤, and will further tighten cost and credit controls.
• Forecasts adjusted; maintain Outperform. We adjust our FY09-10 forecasts by +4.2% to -5.5% to reflect retreating energy prices, higher ridership and forex translation. We also introduce FY11 forecasts. Due to our earnings changes, our DCF-derived target price falls to S$1.84 from S$1.97 on an unchanged WACC of 11%. Management guided for a minimum 50% dividend payout and no special dividends for FY09, translating to a prospective CY09 dividend yield of 4.4%. Maintain Outperform on the back of its defensive earnings.
ComfortDelgro – DBS
Positioning for the long term
4Q/FY08 net profit were within expectations. But, a lower dividend payout at 52% versus past 4 years was a surprise. It seems like management is conserving cash for acquisitions, which should be beneficial over the long term, given its track record. Maintain Buy, TP: S$1.57.
4Q/FY08 results in line. Headline net profit of S$200m (- 10% y-o-y) were within our expectations. Revenue grew 4% to S$3.1bn but operating profit dipped 17% to S$278m largely on higher fuel costs (+33% y-o-y, S$69m), material and consumables (+33%, S$82m) taxi drivers’ benefits (+16% y-o-y, S$10m) but mitigated slightly by lower staff and vehicle leasing costs.
Final dividend of 2.4cents below expectations. The Group declared a final dividend of 2.4cents, equating to a 52% payout, which was below our expectations of 70% and the range in the last 4 years (75% – 85%). We think management is conserving cash for overseas acquisition opportunities, particularly in Australia and China. Singapore 2009 Budget yields S$35m savings. The recent Budget measures will yield S$35m for the Group and will be passed on as rebates and the widely anticipated fare reductions later this year. We do not expect the fare reduction to have a significant impact on the Group’s bottomline.
Maintain Buy; TP: S$1.57. Whilst the market may be disappointed by a lower dividend payout versus its historical average, we think this may be beneficial for the Group in the long-term if they are able to deliver on accretive acquisitions to reinforce its overseas growth. We maintain
our Buy recommendation with a TP: S$1.57 based on 15x FY09F earnings.
ComfortDelgro – BT
ComfortDelGro’s full-year profit falls 10% to $200m
The land transport firm says operating profit slipped 17% to $278m
HIGHER operating expenses put the brakes on ComfortDelGro’s net profit for the full year ended Dec 31, 2008, causing it to fall 10.3 per cent to $200.1 million, even as revenue grew 3.6 per cent to $3.13 billion.
The land transport giant said operating profit slipped 17.3 per cent to $278 million due mainly to the higher cost of fuel in the first three quarters of the year. For the full year, fuel and electricity costs jumped 31.8 per cent to $285.4 million.
Together with pricier fuel, higher payment for cashless transactions on increased turnover and a rise in taxi driver benefits pushed total operating expenses up 6.2 per cent to $2.85 billion. Earnings per share fell to 9.59 cents from 10.73 cents.
A final one-tier tax-exempt dividend of 2.4 cents per share has been proposed. In addition to the normal interim one-tier tax-exempt dividend of 2.6 cents paid earlier, the total dividend for 2008 would be five cents per share if the final dividend is approved.
ComfortDelGro said the operating profit of its overseas businesses as a proportion of total group operating profit rose to 47.3 per cent in 2008 from 45.8 per cent the year before.
Turnover for its bus business slipped 0.4 per cent to $1.5 billion because of the translation effect of the weaker British pound and Australian dollar.
Still, the UK operations accounted for over 71 per cent of total overseas bus turnover, while Australia made up 23 per cent. China’s share was 6 per cent.
In Singapore, listed unit SBS Transit’s (SBST) net profit for the full year ended Dec 31, 2008 fell 18.9 per cent to $40.58 million, hit by higher fuel and electricity costs, as well as lower interest income on investments. But SBST’s revenue grew 8.9 per cent to $729.6 million due mainly to higher bus and rail fare revenue, along with higher rental income.
ComfortDelGro’s taxi business recorded a 2.5 per cent hike in turnover to $945.3 million. In Singapore, turnover from taxis rose 10.3 per cent to $614.7 million on an increase in fleet size and cashless transactions.
But turnover from its overseas taxi operations fell 9.4 per cent to $330.6 million, mainly due to a 19 per cent decline in UK turnover to $209.3 million from the weaker pound and a drop in demand from corporate accounts. This was partially offset by increases in China and Vietnam.
The rail business chalked up a 15.7 per cent increase in turnover to $101.5 million on higher ridership for the North-east MRT Line and the Punggol and Sengkang LRTs. This is the first time turnover has crossed the $100 million mark.
Listed unit Vicom saw net profit for the full year ended Dec 31, 2008 rise 17 per cent to $15.8 million, thanks to improved volumes from its core businesses of vehicle inspection, and testing and inspection services.
The vehicle inspection unit of ComfortDelGro said total revenue rose 14.1 per cent to $73.8 million on higher revenue, with the significant increase in the testing and inspection services coming from the construction sector, marine and offshore, and oil and gas.
Looking ahead, ComfortDelGro managing director and group CEO Kua Hong Pak said 2009 will be ‘unprecedented and very challenging’. ‘Our focus is on how business trends are developing so as to better position ourselves.’
SMRT – DB
Public transportation ridership set to grow
We raise our earnings by 9.4% and target price to S$2.00
SMRT continues to deliver steady earnings growth and a respectable yield of 5.3%. We expect FY10E earnings growth of 10.4% YoY supported by resilient ridership growth and cost savings from lower oil prices. We have raised our earnings by 9.4% in FY10E to account for our lower oil price assumptions. We raise our TP from S$1.95 to S$2.00 and reiterate our Buy recommendation.
Beneficiary of lower oil price, wage deflation, higher ridership and new rail
SMRT should benefit from: 1) a drop in oil prices, 2) lower staff costs, 3) resilient ridership growth and 4) rental income stability due to long leases. SMRT has also secured a contract to operate the palm monorail in Dubai. This contract is based on a cost plus model and could boost SMRT’s revenue by S$20m pa. Our cost assumptions are conservative and should provide further upside to our earnings.
Increase in rail and bus ridership to offset potential reduction in fares
Public transportation ridership could see stronger growth, underpinned by the reduction in transport fares and an increasing trend of moving towards public transport. We cut our assumptions for fares by 5% in anticipation of the potential fare reduction by the PTC at the end of Feb09. We expect the 5% potential rebate in fares to be more than offset by the increase in ridership for rail and bus.
Target price of S$2.00 implies a PE of 16.8x FY10E; risks
We raise our target price from S$1.95 to S$2.00 on our earnings upgrade and a change in our valuation from ROE/PB to DCF. We have used a COE of 7.5% based on a risk-free rate of 2.6%, ERP of 4.8% and a beta of 1.0 with a TGR of 1%. Downside risks include: a strong rebound in the oil price, decline in ridership, sharp reduction in fares, intense taxi competition and disease outbreak.
StarHub – DBS
Firm guidance reassuring
StarHub’s net profit of S$87m (-11% y-o-y, +10% q-o-q) was slightly better than our S$83m estimate due to lower subscriber acquisition costs. Management guided for (i) 18 cents DPS for FY09 vs our 16 cents expectations, (ii) lowsingle digit revenue growth and 31% service EBITDA margin for FY09, and (iii) capex at less than 11% of sales. We think the 32% margin is a possibility given easing competition. Maintain BUY for stable earnings and 8.9% yield, with a revised target price of S$2.20.
Impact of recession vs easing competition. The impact of recession is already visible in lower roaming fees and usage, which led to lower ARPU for postpaid mobile. Going forward, we might also see a drop in prepaid subscribers. On the other hand, lower subscriber acquisition and retention costs after operators halted aggressive handset subsidies could offset the adverse impact of a recession to a large extent, if not completely.
8.9% dividend yield supported by 11% FCF yield. While FY09F dividend yield looks safe, potentially lower capex from FY10F onwards after StarHub completes its three-year network spending on billing and IT systems in FY09 could lead to higher free cash flow even if earnings do not improve.
Maintain BUY with revised S$2.20 TP. We raised our FY09F and FY10F earnings by 5% each after imputing the recently announced job-credits and corporate tax reduction. Our target price is pegged to 12x FY09F PE, which is a 20% premium to our 10x PE target for M1. The premium is premised on (i) StarHub’s better track record, (ii) no cash tax until FY09F because it has sufficient deferred tax assets, and the resultant 11% free cash flow yield should support the 8.9% dividend yield.