Ridership update

• Bus ridership for April showed a slight growth of 3.4% y-y

• Rail ridership continues to grow strongly in April, 14.8% y-y

• Maintain Buy recommendation with a fair value estimate of S$1.73

Both bus and rail riderships grew in April

Both the bus and rail riderships grew in April by 3.4% and 14.8% y-y respectively; bus ridership saw a modest growth despite the opening of circle line. We believe that more Singaporeans are switching over to the public transport due to the increased connectivity and shorter travelling time during the morning peak hours,which bodes well for the 2 transport operators in Singapore.

Valuation and Recommendation

We are maintaining our Buy recommendation and fair value estimate of S$1.73, we believe that the UK’s business will turn in a better result for 2010 and Australia’s business will continue to show strong growth. The recent price correction of CDG has provided investors with a good opportunity to accumulate the stock.

Trading near trough valuations; BUY

1Q10 results in-line with ours and consensus expectations. ComfortDelGro reported 1Q10 PATMI of S$54.3m, up 3.4% YoY (+0.4% QoQ) representing 24% of our full year forecast of S$227m (consensus S$226m). The Group’s Australia bus and Singapore taxi operations registered remarkable EBIT growth of 90% and 22%, respectively. Maintain BUY, with a DCF-derived target price of S$1.78. Stock trades at a compelling 13.9x FY10 P/E multiple.

Rail continues to cannibalise bus ridership. In 1Q10, NEL rail ridership rose 12% to 0.4m (2009 growth: 5.5%). This is in contrast with the 0.9% increase in bus ridership. 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% and we have factored this into our estimates. Every 1% change in bus ridership could affect earnings by 0.9%.

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 due to the opening of CCL); 2) bus revenue from Australia to improve with additional services; 3) Singapore taxi revenue to increase with more cashless transactions and new replacement taxis; and 4) rail ridership in Singapore to continue to post strong growth.

Trading at lower range of its 13-20x trading band. ComfortDelGro trades at a compelling 13.9x FY10 P/E multiple, compared to SMRT’s lofty 19.6x P/E multiple. Despite the relatively challenging operational environment in its Singapore’s bus operations, we believe other business units such as Singapore taxis and rail as well as Australia bus operations will continue to underpin the group’s overall earnings. Recommend a pair trade: SELL SMRT (TP: S$2.00) and BUY ComfortDelGro (TP: S$1.78).

1Q10 in line – Singapore taxis and Australian buses drive growth

● CD’s March-quarter revenue of S$766.9 mn (+7% YoY) and net profit of S$54.3 mn (+3% YoY) were in line with our forecasts, and 24% and 23% of our full-year revenue and earnings estimates, respectively.

● In Singapore, operations were buoyed by bus and rail ridership growth of 0.9% and 12.1%, respectively. Taxi revenue rose 8% YoY, driven by a larger operating fleet (up 1.5% YoY) and higher cashless transaction volumes, reflecting firm underlying demand.

● CD’s overseas growth profile, now at 43% of revenue and 38% of operating profit, remains on track, led primarily by an 84% YoY jump in its Australian bus operations (full-year contribution from CDC Victoria and tailwinds from a stronger AUD). UK bus revenue was flat, as increased standards lowered QIC income at Metroline.

● We see CD as the best leveraged to rising visitor arrivals, with its dominant taxi market share. We fine tune our EPS by 1% and raise our target price slightly to S$1.90 from S$1.88, and believe that valuations are compelling at 13x P/E. We maintain our OUTPERFORM rating.

1Q FY10 results review

• 1Q FY10 net profit of S$54.3MM (+3.4% Y/Y) was in line with expectations with growth coming from (1) CDC Victoria; (2) CDC NSW; (3) Singapore taxi; (4) auto engrg; and (5) rail (NEL ridership +12% Y/Y).

• Bus: improvement in Australia, weaker Singapore outlook: Segmental revenue/EBIT for bus rose 8.9%/3.7% helped mainly by positive translation effect of the stronger A$, higher mileage operated by CDC NSW and fullquarter contribution from CDC Victoria. Singapore bus operation was weaker (EBIT: -21% Y/Y) due to the temporary fare reduction since Apr-09 (expiring Jul-10). Management expects Singapore bus ridership to be negatively impacted by the progressive opening of the Circle Line.

• Recovery in Singapore taxis: EBIT for Singapore taxi grew 22% on slightly larger operating fleet and higher volume of cashless transactions e.g. NETS, credit cards, Cabcharge. However, management does not expect to significantly increase its taxi fleet in the near term as it continues to monitor the sustainability of demand from the integrated resorts.

• Downtown Line bid could see delay: The company is actively preparing for the DTL bid but expects the tender to take place end 2010/early 2011.

• Fuel hedging: Management attributed the 3% Q/Q decline in fuel costs to its sound hedging strategy. Fuel costs for the rest of the year remain substantially unhedged as management sees lower prices ahead.

Lifted by stronger A$

• In line; maintain Underperform. 1Q10 core net profit of S$54.3m (+3.4% yoy) was broadly in line with our estimate (S$54.0m) and consensus. We maintain our earnings estimates. 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.

• Helped by stronger A$. Group revenue was up 7% yoy to $766.9m thanks to growth in revenue from the bus, the taxi, automotive engineering services, rail, vehicle inspection and testing and driving centre businesses offset by declines in the car rental and leasing and bus station businesses. Revenue growth was also boosted partially by a positive forex translation effect ($11.9m). Group operating expenses grew mainly thanks to increases in staff costs, payments to drivers for contract, depreciation with more new buses, fuel and electricity costs from higher consumption, vehicle leasing charges from more vehicles leased in Australia and Ireland and higher materials and consumables from more vehicles sold.

• Operational review. Train revenue rose 4.6% yoy thanks to higher average ridership (+12.1%) for the North-East Line offset by the temporary fare reduction. Bus revenue was up 8.8% yoy mainly due to higher Australia bus revenue thanks inclusion of revenue from CDC Victoria and a favourable forex translation effect due to the stronger A$. Taxi revenue was higher 5.0% yoy due mainly to a larger operating fleet and an increase in cashless transactions in Singapore.

• Outlook. We believe that the outlook remains challenging for the group as bus ridership will be affected by the opening of SMRT’s Circle Line and fare-based revenue will be impacted by the fare reduction of 2.5% come July. The group has also guided for its UK bus business to be affected by the weaker £.