Still hit by weak sterling

• In line; maintain Underperform. 4Q09 core net profit of S$54.1m (+20.8% yoy) was broadly in line with our estimate (S$53.5m) and consensus. FY09 core net profit rose 26.5% yoy to S$219.5m. We maintain our FY10-11 estimates and introduce FY12 forecasts. Our target price remains S$1.73 (WACC: 10.4%, terminal growth: 2%), still applying a 10% discount to our DCF valuation to account for forex risks. We maintain Underperform given a lack of catalysts. We continue to prefer SMRT to CD given that SMRT should be a bigger beneficiary of the opening of integrated resorts in Singapore, as it has larger train operations. 

• Hit by weaker £ and A$. FY09 revenue slipped 2.2% yoy to S$3.1bn, mainly due to a negative forex translation effect of S$102.2m offset by an increase in revenue of S$33.8m. Operating costs of S$2.4bn fell 6.1% yoy with declines mainly in fuel and electricity, materials and consumables and contract services. FY09 EBITDA margin of 20.6% was better than FY08’s 17.4% on lower fuel and energy prices and cost savings from Jobs Credit in Singapore. Overseas operations contributed 43.5% of revenue, up from 42.9% a year ago. CD declared a final dividend of 2.67 cts/share, in line with expectations. Including its interim dividend, FY09 dividend was 5.3cts. 

• Operational review. Train revenue rose thanks to higher average ridership (+5.9%) for the North-East Line. However, bus revenue fell mainly due to a negative translation effect from weakness in the sterling and A$. Taxi revenue also fell due to weaker revenue from the UK and Vietnam, partially offset by higher Singapore (rise in cashless transaction volume and a larger fleet) and China revenue (a larger fleet and higher rentals).CD continues to guide that revenue from its UK business will be affected by translation effects from £ weakness.

Business as usual; earnings in-line

4Q09 results in-line with expectations. ComfortDelGro registered 4Q09 PATMI of S$54.1m, up 20.8% YoY (-2.7% QoQ). 2009 PATMI of S$219.5m (+9.7%) was 98.5% of our full year forecast of S$222.8m (consensus S$219.7m). 4Q09 revenue rose 3.4% YoY to S$794.3m despite negative translation effect of the weaker £ and A$. In tandem with the rise in revenue, operating profit rose 15.4% to S$83.0m as operating expense growth was capped at 2.2%. Not for the negative foreign currency translation effect, the increase in operating profit for FY09 would have been S$358.9m (+29.1%). Maintain BUY with a DCF-derived target price of S$1.78. 

Has rail cannibalised bus ridership? In 2009, NEL rail ridership rose 5.9% to 0.37m (2008 growth: 15.4%). This is in contrast with the 1.3% fall in bus ridership. While management pointed out that the decline in bus ridership was due to poor economic conditions, we believe the overlapping of inter-town bus service routes with MRT lines will continue to draw more bus commuters towards rail, due to the relatively faster journey times. We expect the cannabilisation process to continue with rail ridership growing by a stronger 10% in 2010 underpinned by tourism growth. In contrast, we expect bus ridership to decline by 2%. 

Key takeaways from analyst briefing. Management expects: 1) Singapore bus revenue to decline in 2010 (we believe this is in view of fare reduction and weaker ridership); 2) bus revenue from Australia to improve with additional services while bus business in China will grow with higher ridership; 3) taxi revenue growth in Singapore, China and Vietnam to remain unchanged in 2010; and 4) revenue from UK operations to continue to be impacted by currency translation losses. 

At its mid range of its 13-17x trading band. A final dividend of 2.67¢ was declared on top of its interim dividend of 2.63¢ paid earlier (representing a payout ratio of 50%). ComfortDelGro trades at 14.5x FY10 P/E multiple, which is at its mid-range of 13-17x trading band. Our DCF-derived TP of S$1.78 has an implied P/E multiple of 16.5x.