Boosted by stronger A$

• In line; maintain Outperform. 2Q10 core net profit of S$58.2m (+1.6% yoy) was broadly in line with our estimate (S$58.3m) and consensus, accounting for 26% of our full-year estimates. 1H10 earnings came in at S$112.5m (+2.5% yoy), accounting for 51% of full-year estimates. We maintain our earnings estimates. Our target price rises from S$1.64 to S$1.83 (WACC: 10.4%, terminal growth: 2%), after removing a 10% discount to our DCF valuation as we believe that currency risks have been priced in. Maintain Outperform on the back of an improving outlook.

• Helped by stronger A$. 2Q10 group revenue was up 4.1% yoy to $789.3m thanks to growth in revenue from the bus, the taxi, rail, vehicle inspection and testing, driving centre, bus station and car rental and leasing businesses, offset by the decrease from the automotive engineering services business. Revenue growth was also boosted partially by a positive forex translation effect ($15.2m) thanks to a stronger A$, offset partially by weaker £ and RMB. Group operating expenses grew mainly thanks to higher fuel and electricity costs, higher cost of diesel for resale, higher staff costs, lower Job Credits in Singapore, higher payments to drivers for contract services and higher depreciation due to more new and replacement buses and taxis.

• Operational review. 2Q10 bus revenue grew 5% yoy on higher revenue from Singapore due to higher ridership (+4.1% yoy) and higher Australia revenue due to the positive translation effect of the A$, offset by lower UK revenue due to the negative translation effect of the £. Taxi revenue grew 3.5% yoy thanks mainly to higher Singapore revenue due to larger operating fleet and higher volume cashless transactions, offset by lower overseas revenue. Despite the fare reduction, rail revenue was higher by 14.3% yoy thanks to higher ridership.

As stable as it can get

At a Glance

• 2Q10 net profit (S$58.2m) up a marginal 2% yoy, as expected

• Singapore bus ridership up 4% despite CCL opening – better than expected

• FY10-11F revised by 3% on higher bus ridership

• ComfortDelgro offers better value at 14.5x PE vs SMRT’s 19x, but no compelling catalyst; Maintain Hold, TP at S$1.65

Comment on Results

2Q10 net profit +2% as expected. 2Q net profit was up marginally by 2% y-o-y to S$58.2m, as topline grew 4.1% to S$789.3m mainly driven by Singapore bus, taxi and Australia bus operatations. Operating margins inched up to 12.6%, as operating expenses grew by smaller 3.9% vis-à-vis revenue. Bulk of increase in expenses came from fuel/energy (+22% yoy). Net profit showed a smaller growth of 2% on higher finance costs (S$8.6m, +18%) lower JV/Associates income (S$1.4m, -18%). A 2.7 S cts interim dividend was declared (1H09: 2.63 Scts), equating to 50% payout ratio.

More fuel hedges in place in 3Q (vs 2Q), but not beyond that. We understand that management had hedged c.50%/15% of Singapore/UK requirements in July/Aug and will look to put in more hedges.

Singapore bus ridership up 4%, despite CCL, better than originally expected. Despite the opening of the Circle Line Stages 1&2 on 17 Apr, Singapore’s bus ridership grew 4% yoy in 2Q. We think the cannibalization effect may not be as severe as originally feared. We are more optimistic on bus ridership, nudging our growth assumption to 4%, from 1.5% previously.

$38.8m Swan Taxis acquisition pending approval. The Group’s bid for Perth based Swan Taxis is awaiting approvals, expected in 4Q. We have not factored in potential contribution, but estimate this could add c.2% to FY11F profits, if it materialises.

Recommendation

More value in ComfortDelgro vs SMRT, but no compelling upside/catalyst. Maintain Hold, TP: S$1.65. Between the 2 land transport counters, we prefer ComfortDelGro over SMRT (FV, TP: S$1.88) given its more attractive valuation at c.14.5x PE vs SMRT’s 19x (FYE Mar’11). But, we do not see any compelling catalyst at current point to drive its share price, given the moderate growth in the ensuing quarters. As such, we maintain Hold, TP S$1.65 based on average of 15x PE and DCF.

As stable as it can get

At a Glance

• 2Q10 net profit (S$58.2m) up a marginal 2% yoy, as expected

• Singapore bus ridership up 4% despite CCL opening – better than expected

• FY10-11F revised by 3% on higher bus ridership

• ComfortDelgro offers better value at 14.5x PE vs SMRT’s 19x, but no compelling catalyst; Maintain Hold, TP at S$1.65

Comment on Results

2Q10 net profit +2% as expected. 2Q net profit was up marginally by 2% y-o-y to S$58.2m, as topline grew 4.1% to S$789.3m mainly driven by Singapore bus, taxi and Australia bus operatations. Operating margins inched up to 12.6%, as operating expenses grew by smaller 3.9% vis-à-vis revenue. Bulk of increase in expenses came from fuel/energy (+22% yoy). Net profit showed a smaller growth of 2% on higher finance costs (S$8.6m, +18%) lower JV/Associates income (S$1.4m, -18%). A 2.7 S cts interim dividend was declared (1H09: 2.63 Scts), equating to 50% payout ratio.

More fuel hedges in place in 3Q (vs 2Q), but not beyond that. We understand that management had hedged c.50%/15% of Singapore/UK requirements in July/Aug and will look to put in more hedges.

Singapore bus ridership up 4%, despite CCL, better than originally expected. Despite the opening of the Circle Line Stages 1&2 on 17 Apr, Singapore’s bus ridership grew 4% yoy in 2Q. We think the cannibalization effect may not be as severe as originally feared. We are more optimistic on bus ridership, nudging our growth assumption to 4%, from 1.5% previously.

$38.8m Swan Taxis acquisition pending approval. The Group’s bid for Perth based Swan Taxis is awaiting approvals, expected in 4Q. We have not factored in potential contribution, but estimate this could add c.2% to FY11F profits, if it materialises.

Recommendation

More value in ComfortDelgro vs SMRT, but no compelling upside/catalyst. Maintain Hold, TP: S$1.65. Between the 2 land transport counters, we prefer ComfortDelGro over SMRT (FV, TP: S$1.88) given its more attractive valuation at c.14.5x PE vs SMRT’s 19x (FYE Mar’11). But, we do not see any compelling catalyst at current point to drive its share price, given the moderate growth in the ensuing quarters. As such, we maintain Hold, TP S$1.65 based on average of 15x PE and DCF.

Steady performer

Event

• ComfortDelgro reported in‐line 2Q10 results. Net profit rose by 1.6% YoY and 7% QoQ, powered by the Australian bus operations (+34%), the China driving centres (+15.5%) and the Singapore rail (+15%), taxi (+9%) and bus (+4%) services. The bottom line was hardly affected by forex translation as the weakness in the pound and the renminbi was offset by the strength in the A$. Operating margin improved despite

higher energy costs as revenue rose faster than overall operating expenses. Interim dividend was higher at 2.7 cents a share.

Our View

• ComfortDelgro’s train and taxi services in Singapore will continue to thrive on the Republic’s vibrant tourism scene. Train revenue in 2Q responded well to a 14% jump in ridership on the North East Line, which ends at HarbourFront and Punggol. The taxi division benefited from more cashless transactions and a larger fleet despite pricier certificates of entitlement as scrapping of older taxis was delayed.

• We expect relatively benign energy cost and currency risk this year, with the 22% jump in diesel and electricity costs so far offset by revenue growth (opex up only 3.9%). We expect Comfort will be able to hedge its diesel requirements at lower prices with the recent fall in crude. Similarly, it has US$ and the pound covered at good rates.

• More investments in Australia are being planned. The bid for Swan Taxi in Western Australia will continue until mid‐Sept. Two weeks into the bid, it already has 40% of the 90% acceptance needed. It will also require the nod from the Australian Competition and Consumer Commission. If successful, we expect a 1.5% boost to FY11 earnings.

Action & Recommendation

We maintain our BUY call on ComfortDelgro with a target price of $1.87, conservatively pegged to 17x current‐year earnings. We expect earnings upside ahead, with catalysts from improvement in the UK economy and more acquisitions overseas, especially in Australia and China.

Steady performer

Event

• ComfortDelgro reported in‐line 2Q10 results. Net profit rose by 1.6% YoY and 7% QoQ, powered by the Australian bus operations (+34%), the China driving centres (+15.5%) and the Singapore rail (+15%), taxi (+9%) and bus (+4%) services. The bottom line was hardly affected by forex translation as the weakness in the pound and the renminbi was offset by the strength in the A$. Operating margin improved despite

higher energy costs as revenue rose faster than overall operating expenses. Interim dividend was higher at 2.7 cents a share.

Our View

• ComfortDelgro’s train and taxi services in Singapore will continue to thrive on the Republic’s vibrant tourism scene. Train revenue in 2Q responded well to a 14% jump in ridership on the North East Line, which ends at HarbourFront and Punggol. The taxi division benefited from more cashless transactions and a larger fleet despite pricier certificates of entitlement as scrapping of older taxis was delayed.

• We expect relatively benign energy cost and currency risk this year, with the 22% jump in diesel and electricity costs so far offset by revenue growth (opex up only 3.9%). We expect Comfort will be able to hedge its diesel requirements at lower prices with the recent fall in crude. Similarly, it has US$ and the pound covered at good rates.

• More investments in Australia are being planned. The bid for Swan Taxi in Western Australia will continue until mid‐Sept. Two weeks into the bid, it already has 40% of the 90% acceptance needed. It will also require the nod from the Australian Competition and Consumer Commission. If successful, we expect a 1.5% boost to FY11 earnings.

Action & Recommendation

We maintain our BUY call on ComfortDelgro with a target price of $1.87, conservatively pegged to 17x current‐year earnings. We expect earnings upside ahead, with catalysts from improvement in the UK economy and more acquisitions overseas, especially in Australia and China.