Author: tfwee
ComfortDelgro – DBS
Things Can Only Get Better
Story: Excluding an exceptional gain of S$26.5m, Comfort Delgro’s 2Q08 results were below expectations, due mainly to the high cost of fuel dampening domestic earnings. Core profit in the quarter fell by 48% yoy to S$30.3m on top line growth of 6% yoy to S$785m. At half-time, core earnings fell by 29% yoy to S$80.5m on revenue expansion of 6% to S$1.5bn. An interim dividend of S 2.6cts was declared.
Point: Whilst overseas margin held up quite well at 9.7% at half-time vs 10% a year ago, CD’s domestic bus and diesel sales operations were adversely affected by significantly higher fuel costs, bringing down domestic margins from 12.3% a year ago to 7% as at 1H08. Turnover growth, on the other hand, was driven by higher ridership domestically (+10% yoy), whilst overseas operations only showed a modest growth (+1% yoy). Factoring in lower margins for the Group’s bus operations and diesel sales business, as well as the S$26.5m exceptional gain in 2Q08, we have lowered our earnings forecasts for FY08 and FY09 by 9% and 15% respectively.
Looking ahead, with oil prices having eased off in recent weeks and the potential of a fare hike coming through, we are optimistic that margins over the next few quarters will improve.
Relevance: We maintain our BUY recommendation, as we believe core earnings can show improvement over the next few quarters, with a target price of S$1.90, adjusted to reflect our lower earnings and dividend forecasts. Our target price is still based on a target net yield of 4.5% for FY09, translating to c. 18x FY09 earnings. CD’s balance sheet remains healthy at less than 0.1x net gearing and there remains the potential for further overseas expansion or acquisitions to drive the Group’s long-term growth.
ComfortDelgro – BT
ComfortDelGro Q2 earnings down 2.9%
SBS Transit posts 56% fall in Q2 profit on rise in fuel and electricity costs
A COMBINATION of higher fuel and electricity costs, as well as diesel subsidies to taxi hirers, weighed down ComfortDelGro Corp’s net profit for the second quarter ended June 30, 2008, which slipped 2.9 per cent to $56.8 million.
But Q2 revenue rose 5.8 per cent to $790.1 million on the back of strong growth in bus and rail ridership, mileages operated, and taxi corporate billings.
Overseas turnover accounted for 43.8 per cent of total group turnover, down from 46.7 per cent a year ago mainly because of the weaker pound sterling. ComfortDelGro has extensive bus and taxi businesses in the UK.
‘The operating environment has proven to be difficult with the global economic slowdown, rising inflation and high oil prices,’ said Kua Hong Pak, ComfortDelGro’s managing director and group CEO. ‘This is not expected to ease up soon.’
Operating expenses rose 11.2 per cent to $739.2 million in Q2. Of the $74.2 million increase, fuel and electricity costs accounted for $31.0 million, while purchases of materials and consumables – mainly diesel – accounted for another $33.7 million.
The land transport giant said high energy costs were largely responsible for Q2 operating profit plunging 37.7 per cent to $50.9 million.
But the good news was that overseas operating profit accounted for a record 59.6 per cent of total group operating profit – from 41.0 per cent in Q2 last year.
In particular, the operating profit of the overseas bus businesses made up a whopping 89 per cent of the group’s total bus operating profit.
Earnings per share in the second quarter were 2.72 cents, down from 2.81 cents in the previous corresponding quarter.
For the first half ended June 30, 2008, net profit was down 6.1 per cent to $107.0 million. Interim revenue was 5.8 per cent higher at $1.54 billion.
H1 earnings per share was 5.13 cents, down from 5.48 cents previously. An interim one-tier tax-exempt dividend of 2.6 cents per ordinary share has been declared.
Higher fuel and electricity costs also put the brakes on listed unit SBS Transit’s net profit for the second quarter ended June 30, 2008, causing it to fall 56.0 per cent to $6.39 million.
But Q2 group revenue grew by 8.5 per cent to $180.4 million on increased bus and rail fare revenue, higher advertisement revenue and higher rental income.
Fuel and electricity costs in Q2 had surged 73.7 per cent to $52.4 million compared with the previous corresponding quarter, pushing the bus and rail operator’s total operating expenses up by 16.0 per cent to $173.6 million.
Earnings per share fell to 2.07 cents in Q2 from 4.72 cents in the same quarter last year.
For the first half ended June 30, SBS Transit’s net profit was 31.3 per cent lower at $21.68 million, while interim revenue was 8.5 per cent higher at $357.1 million.
Interim earnings per share slipped to 7.04 cents from 10.31 cents previously. A one-tier tax-exempt interim dividend of three cents per ordinary share has been declared.
ComfortDelgro – CIMB
Overseas growth
• Below. 2Q08 core net profit of S$30.8m (-47.4% yoy) was below consensus and our expectations. 1H08 net profit constitutes 38% and 40% of the respective annualised estimates. The variances were: higher energy and fuel costs, costs of materials and consumables, and diesel subsidies. Pretax margins slipped to 9.9% from 11.1% in 2Q07. Revenue growth of 6.2% yoy to S$785m was in line, driven by all segments. Including an exceptional item of S$26.5m relating to Cabcharge, net profit was flat at S$56.8m. Overseas operations were 44% of revenue in 2Q08. An interim dividend of S$0.026 was declared.
• Plagued by fuel. Fuel and electricity costs rose by S$31m while an operating loss of S$11.3m was incurred on the sale of diesel to taxi hirers in Singapore. For Singapore bus operations under SBST, revenue rose 6.2% yoy to S$141.3m on higher ridership, but there was an operating loss of S$3.1m on account of higher fuel costs compared with a S$9.4m profit a year ago.
• Operational review. Bus revenue rose 3.1% yoy to S$393.5m in 2Q08, driven by overseas operations. Australia revenue was up 30% due to the indexation of contract revenue, additional mileage operated and increased charter work. China and Singapore growth was led by higher ridership. UK Metroline was weaker by 6.6% yoy as a result of a weaker sterling pound against the S$. Taxi revenue rose 3.6% yoy to S$237.2m, on increased corporate billings and higher cashless transactions in Singapore and strong China contributions. UK operations slipped 13.3% yoy to S$57.2m on lower corporate bookings and a weaker pound vs. S$. Rail was up 16% yoy to S$26.8m on increased ridership; its operating profit rose 42% yoy to S$3.7m.
• Forecasts adjusted; maintain Outperform. To reflect higher-than-expected fuel costs for FY08, we have cut our core net profit forecast for FY08 by 19.2%. However, we raise our FY09-10 estimates by 3.7-4.6% to factor in less-volatile fuel costs. Following this, our DCF-based target price rises to S$2.16 from S$2.09, on an unchanged WACC assumption of 9.3% and terminal growth of 2%. Maintain Outperform on the back of an attractive dividend yield of 5.5%.
StarHub – Phillip
Results were below expectations
2Q FY08 results. StarHub reported 2Q operating revenue of S$531.4m (+8.6% yoy) and net profit of S$64.2m (-20.5% yoy). Moreover, EBITDA decreased to S$146.7m (-10.4% yoy). It also declared an interim dividend of S$0.045 per ordinary share, which was higher than the dividend of S$0.040 last year.
Net profit was substantially lower due to higher acquisition and retention costs as mobile phone numbers became portable on 13 June 2008. StarHub reported that a record number of people chose its services.
Performances of the various business units. StarHub reported strong growth in most of its business units: mobile revenue was S$269.3m (+6.5% yoy), cable TV revenue was S$102.1m (+24.9% yoy), broadband revenue was S$62.3m (+0.4% yoy) and fixed network service revenue was S$74.5m (+12.1% yoy). However, sale of equipment was lower at S$23.2m (-10.4% yoy). As at 30 June 2008, the number of customers for its mobile, Pay TV and broadband businesses were 1,796,000, 511,000 and 358,000 respectively.
FY08 Outlook. StarHub expects continued growth in its operating revenue in 2008 to be approximately 7% and will pay a minimum annual cash dividend of 18.0 cents per ordinary share for 2008. The EBITDA margin is estimated to be about 31% of service revenue and the cash capital expenditure as a ratio of operating revenue will not exceed 12%.
HOLD recommendation, target price reduced from S$3.30 to S$2.99. Based on the discounted cash flow (DCF) model, we have reduced our target price from S$3.30 to S$2.99 as we have reduced our profit estimates for FY2008 to FY2010. However, StarHub continues to be an attractive dividend play although its operations are focused on the Singapore market. Due to the limited upside in the share price, we have a hold recommendation on the stock.
STEng – DBS
Margins weakened at Aerospace
Story: 2Q08 net earnings of S$119.9m was disappointing, coming in 2% below 2Q07 numbers due to lower-thanexpected earnings growth in the Aerospace and Land Systems segments. The weaker US$ shaved S$12m from group PBT in 1H08.
Point: The 18% y-o-y dip in Aerospace earnings came on the back of flat revenues as PBT margin slid more than 3 ppts to 15% (historical low) on account of i) the depreciating US dollar, ii) slower than expected ramp up in new facilities (Panama) and iii) higher prototyping costs as the Group worked on conversions of three types of passenger aircraft to freighters. Land Systems profits fell 9% y-o-y as a result of lower margins in the automotive segment and higher losses from associate CityCab. Electronics segment profit was up 13% y-o-y on the back of higher contribution from iDirect, which launched its new products. Marine segment was the
surprise package with earnings growth of 21% despite lower sales, as higher proportion of high-margin ship-repair works led to a 2.5 ppt margin expansion. With recent contracts wins (to build a Diving Support Vessel) and renewals (component supply to Polish Airlines) in place, orderbook stands at S$9.3b, of which about S$2.1m should be recognised in 2H08.
Relevance: We have revised our FY08 and FY09 earnings forecasts downwards by about 6% and 5% respectively. Management guided for flat FY08 earnings vs modest growth previously. We reiterate our concern about the Group’s exposure to the US airline industry – which is in the midst of paring capacity – and to the weak US economy (via Marine and iDirect in addition) to the extent of 28% of Group sales (down from 34% in 1H07). The recent strengthening of the US$, however should provide some respite to earnings, if sustained. As such, we keep our Target Price unchanged at S$2.80, and continue to maintain HOLD on the stock given attractive dividend yield in excess of 6%.