Author: tfwee
ComfortDelgro – DMG
If not for negative currency translation, revenue would have expanded
ComfortDelgro reported 1Q09 net profit of S$52.5m, up 4.6% YoY, in line with our expectations.
Revenue contraction due to negative currency translation effect. Revenue contracted 4.4% YoY to S$716.6m. If we strip out the negative translation effect of the GBP and A$ of S$50.1m, revenue would have risen 2.3% YoY. Overseas revenue accounted for 40.3% of total revenue, versus 44.5% in 1Q08.
Operating profit of S$81.5m was 7% higher YoY. Stripping out the negative foreign currency translation, operating profit would have been 11.2% higher.
Australia bus operating profit up due to recent acquisition. Singapore bus revenue contracted 0.4% YoY due to a 0.3% YoY fall in 1Q09 average daily ridership. However, operating profit from this segment was up 6% YoY due to lower fuel costs. Whilst London bus revenue and operating profit were down due to the weaker GBP, Australia bus operating profit was up 11% YoY due to the acquisition of CDC Victoria since its 23 Feb 09 acquisition.
Taxi revenue was down 2% YoY due to weakness for the UK taxi business, but partly offset by increases in the Singapore and China taxi businesses. But taxi operating profit was down 11% YoY.
Whilst the Singapore bus fare reduction effective 1 Apr 09 will lower Singapore bus revenue, we expect Australia bus revenue growth and YoY declines in fuel costs to contribute to overall net profit growth. We are assuming FY09 average crude oil price of US$59/bbl, versus FY08’s US$105/bbl. After factoring in the hedges made by ComfortDelgro, we forecast a 37% decline in FY09 fuel costs. The weakening of the GBP and the A$ started in Sep/Oct 08 and hence the negative currency translation effect should diminish by 4Q09.
Our S$1.78 target price is derived from sum-of-the-parts valuation. Share price catalysts include our forecast 32% recurring net profit increase for FY09, and an attractive FY09 dividend yield of 4.7% (based on a 55% payout ratio).
ComfortDelgro – Phillip
ComfortDelGro Corp announced their first quarter results ended 31 March 2009. Group revenue fell by 4.4% from S$749.6 mil in 1Q08 to S$716.6 mil for 1Q09 due to a negative translation from a weaker Sterling Pound and Australian Dollar of S$50.1 mil. Without this translation loss, revenue would have risen by 2.3% to S$766.7 mil.
Operating expenses declined 5.7% from S$673.4 mil in 1Q08 to S$635.1 mil due mainly to receipt of the Jobs Credit in Singapore, decrease in the cost of diesel purchased for resale to the Group’s taxi drivers and a reduction in fuel and electricity costs. The Group’s operating profit increased by 7.0% or S$5.3 mil from S$76.2 mil in 1Q08 to S$81.5 mil for 1Q09. Operating profit would have been higher at S$84.7 mil if not for the negative foreign currency translation of S$3.2 mil.
Business segment review. Bus business at Group level decreased by 8.6% to S$347.9 mil where the adverse impact of the decline in the Sterling Pound and Australian Dollar more than offset the gains in revenue from these two countries. The China bus business did continue to grow in revenue and ridership coupled with a stronger Renminbi leading to a translation gain of S$1.6 million. Singapore’s bus business saw a decline of 0.4% to S$142.2 mil as average daily bus ridership fell marginally by 0.3%.
Taxi. Although the taxi business in Singapore and China did increase, it was insufficient to mitigate the decline in the Group’s UK taxi business leading to an overall decline of 2.3% to S$225.4 mil. Due to the economic downturn, the Group saw a drop in corporate bookings of S$8.7 million leading to revenue from the UK taxi business decreasing by 33.6% to S$38.1 mil.
Rail. The rail business saw average daily ridership for both the North East Line and the LRTs increasing by 8.3% and 7.6% respectively. Revenue from rail increased 10.5% toS$27.4 million. Including rental and advertising income, total revenue from the rail business grew by 12.0% toS$29.9 million for 1Q09.
Vehicle Inspection and Testing Services. This segment saw growth of 9.6% to S$19.6 million mainly from an increase in the number of vehicles inspected as well as an increase in the number of projects completed by Setsco Services Pte Ltd.
Bus Station. The bus station business under Guangzhou Xin Tian Wei increased by 15.4% to S$6.0 mil for the quarter due to a rise in the number of passengers using the station.
Maintain HOLD, and fair value estimate of S$1.37. ComfortDelgro Corp is currently operating in a challenging environment. We expect its UK bus and especially the taxi business segment to continue its downward trend. Bus operations in Singapore might also be affected given the fare reduction exercise and the increase in transfer rebate. As mentioned in our initiation report, we will continue to watch the unfolding of 1) centralized bus planning, 2) bidding for rights to operate the Downtown Line, and 3) further information on CD’s growth strategy in China and Australia to determine the ongoing validity of our valuation and recommendation.
TELCOs – BT
Telcos’ quarterly results show resilience
But signs of slowdown in mobile market point to need for diversification to sustain growth.
SINGAPORE’S telecommunications trinity walked the talk in the curtain raiser to 2009 with an encouraging set of quarterly results. But despite proving their defensive mettle, signs of a slowdown in the saturated mobile market could point to diversification as the only route to maintain local growth in the long run.
To recap, MobileOne flagged off the telco earnings season on a high note by beating most analyst estimates with its 10.3 per cent jump in Q1 net income to $41.9 million. This improvement was largely the result of lower taxes and tighter cost control.
StarHub kept the momentum going with a 3 per cent increase in first-quarter profits to $82.5 million, helped by lower taxes and higher contributions from its pay-TV and fixed network businesses.
SingTel would appear to have upset the balance this week by turning in quarterly earnings of $903 million, a 17 per cent drop from last year.
However, this decline was largely pegged to negative currency movements and a poor showing from its key regional associates Telkomsel and AIS. If Singapore is used as the yardstick for comparison with its two rivals, SingTel’s local Ebitda (earnings before interest, taxes, depreciation and amortisation) actually rose 20 per cent to $578 million.
Market analysts reciprocated the trio’s performance with unanimous ‘buy’ calls as local telcos continue to live up to their reputation as defensive plays.
‘M1 outperformed the STI by 2 per cent YTD (year to date), but its solid 9 per cent yield is the key attraction,’ said DBS Vickers analyst Sachin Mittal.
StarHub, on the other hand, impressed market watchers with its ability to eke out better margins during crunch times. ‘We have raised our earnings estimates by 4.2 per cent to $310.9 million in FY09 on the back of improving margins,’ said Terence Wong, head of research at DMG & Partners.
Despite SingTel ending its fourth quarter with a lower bottom line, the recent appreciation of regional currencies, coupled with the improved outlook of its key associates, is expected to give the operator a boost this financial year.
‘We have revised our FY10 estimates up slightly (by around 3 per cent to reflect its resilient business) and introduced our FY11 estimates. We have also bumped up our SOTP (sum-of-the-parts) fair value from S$3.09 to S$3.18 to reflect the recovery in equities of its associates,’ OCBC Research analyst Carey Wong said in his client note. He expects SingTel to turn in a net profit of $3.42 billion this year on the back on a $14.32 billion turnover.
While the three operators have shown that they are still in the pink of financial health for now, the Q1 numbers did unravel some niggling signs of concern within their cellular core.
Singapore’s sky-high mobile penetration of 132 per cent leaves little room for new post-paid subscriber growth. In addition, operators are also feeling the pinch as consumers rein in their talk time during the downturn.
In particular, M1 lost 11,000 mobile subscribers during the quarter and the exodus pulled its market share down to 25.4 per cent in Q1. StarHub’s mobile revenue dipped 3.1 per cent in to $264.7 million as customers cut back on international calls and voice usage.
Even SingTel, which reported a 9.1 per cent increase in mobile sales to $370 million with the addition of more customers, admitted its subscribers are making less international calls and keeping within the talk time allocated to their respective subscription plans.
This has prompted SingTel to look into ‘adjacent markets’ such as pay-TV, Internet and mobile advertising, said its Singapore CEO Allen Lew. The launch of its new cross-platform advertising service, and its digital media subsidiary earlier this month are the flag bearers for SingTel’s diversification intent. In addition, it also has its overseas investments to help offset any weakness at home.
StarHub, on the other hand, may have to look more to its pay-TV business and come up with new subscription packages to appeal to the remaining half of the unconverted local households. This will buy time as it waits for its opportunity to extend its corporate connectivity reach when Singapore’s new fibre-optic network is minted in 2013.
Without a viable second business in the near term, market watchers say M1 will have to innovate on mobile pricing and subscription bundles to try and draw the crowds but its margins could be thinned as a result.
‘From the tone of the management, we gather that should its (M1’s) market share continue to fall, it will retaliate aggressively,’ said Mr Wong from DMG & Partners.
ComfortDelgro – CIMB
Overtaken by cyclicals
• In line. 1Q09 net profit of S$52.5m (+4.6% yoy) was in line with consensus and our annualised estimates, forming 23-24% of the respective FY09 estimates. Revenue slipped 4.4% yoy to S$716.6m, mainly due to a negative translation effect from £ and A$ of S$50m. Operating expenses of S$635.1m fell 5.7% yoy with declines in almost all items except for insurance premiums, taxi drivers’ benefits and others. 1Q09 pretax margin of 11% was better than 1Q08’s 9.9% on strong cost control. Overseas operations contributed 40.3% of revenue, down from 44.5% a year ago.
• Operational review. Bus revenue dipped 8.6% yoy to S$347.9m, due to the translation effect of a weak A$ and ₤ against the S$. However, growth came from rail (+12% yoy), bus stations (+15% yoy), automotive engineering (+14%) and vehicle inspection (+10%). Taxi and diesel sales dropped 2.3% yoy and 6.8% yoy respectively. EBIT margins improved to 11.4% from 10% in 1Q08 on improved diesel sales and rail segments.
• Outlook. Management guided that its performance should be maintained, although Singapore bus operations are expected to be weaker on fare reductions and higher transfer rebates. However, the weaker £ and A$ could be a drag on UK and Australian operations. Management remains cautious in view of the downturn, and potential further weakness of the A$ and ₤, and will further tighten costs and credit controls.
• Downgrade to Neutral from Outperform. We maintain our FY09-11 forecasts. Given receding risk aversion, defensive stocks like CD are unlikely to outperform the market. We have applied a 25% discount to our DCF valuation of S$1.84 to account for forex risks. We arrive at a new target price of S$1.37 (previously S$1.84, WACC 11.2%), supported by a prospective CY09 dividend yield of 4.5%.
ComfortDelgro – DBS
A reasonable start
• 1Q09 results within expectations
• Revenues lower (-4%) on weaker GBP, AUD
• Operating profits up (+7%) on lower staff, fuel costs
• Maintain Buy, TP unchanged at $1.55
1Q09 within expectations. Headline net profit of $52.5m (+4.6% y-o-y) was within expectations. Revenue dipped by 4% y-o-y to $716.6m on negative translation effect of a weaker GBP and AUD ($50.1m). Otherwise, revenue would have been up by 2.3% to $766.7m. As a result of lower operating expenses, operating profit increased by 7% to $81.5m.
Weaker currency; lower fuel and staff costs. Singapore bus operations remained relatively stable despite the downturn. Although bus ridership dipped slightly by 0.3%, revenue remained relatively flat on contribution from advertising revenue. Singapore Bus operating profit grew to $16m (+15% yoy) largely on lower fuel costs. Rail revenue ($29.9m, +12% yoy) continued to grow on higher ridership. Taxi revenues were affected by contributions from UK ($38m, -34% yoy) due to lower corporate bookings and a weak GBP. Taxi division’s operating profit dipped by 11% y-o-y to $24.3m on higher insurance premiums, accident claims and drivers’ benefit.
Maintain Buy, TP: S$1.55. We believe the Group will continue to maintain its stable growth in the current downturn, save for a spike in oil price we see in 2008. The recent strength in AUD against SGD should bode well for the Group. Maintain Buy, with our target price maintained at S$1.55, pegged at 15x FY09F PER (midtrading range).