Category: ComfortDelgro
ComfortDelgro – UOBKH
1Q08: Net Profit Down By 9.4% yoy, Hit By Soaring Fuel Costs
1Q08 results below expectation. 1Q08 net profit of S$50.2m was 9.4% lower yoy mainly due to soaring fuel costs. Turnover grew 5.8% yoy to S$749m in 1Q08. Australia was the strongest growth market with a 35.9% increase yoy while the UK market’s revenue slipped 4.7% yoy. Singapore registered a laudable 9.2% yoy increase to S$420.3m, thanks to an increase in both bus and rail ridership. Overseas markets contributed 44% and 47% of total revenue and operating profit respectively.
Bus operations still hurt by volatile fuel prices. CD has not hedged against rising costs since 4Q07, so it is subject to the volatility in fuel prices. We are assuming a full-year price increase of 30% in our model. Singapore bus operations are likely to be hit by soaring fuel costs, but the impact should be mitigated by increasing ridership and fare adjustments. CD’s overseas bus operations to withstand diesel price volatility better thanks to the price adjustment elements built into their contracts, despite a time lag when passing on the cost hikes.
Mixed taxi performance ahead. We believe the taxi fare hike in Singapore has helped taxi drivers increase earnings and therefore maintain CD’s taxi hire-out rates. However, diesel sales to subsidize taxi drivers will continue to hurt CD’s margin under current environment. CD’s taxi operations in China will continue to grow, partly due to an acquisition in Nanjing which was completed in 2007. CD has also guided that the demand for taxi services in the UK market should continue to be affected by the slowdown in the financial sector in London.
Downgrade to HOLD. We value CD at S$1.89 based on the sum-of-the-parts method. We reduce our fair price and earning forecasts to reflect the negative impact of soaring fuel prices and the lower revenue contribution from the UK. We still like CD’s global exposure and decent dividend payout, and suggest accumulating the stock at S$1.65 or below.
ComfortDelgro – DBS
High fuel costs a speed bump
Story: 1Q08 net earnings were below expectations as it declined by 9.4% to S$50.2m despite top line growth of 5.8% yoy to S$749m. The Group was hurt by a weaker performance domestically, which saw operating earnings decline by 15% yoy, due mainly to higher oil prices that hit the Group’s bus business and Diesel sales business (via continued subsidies to taxi drivers). Meanwhile, overseas operations continue to fare well, posting both top and bottom line growth to account for 44.3% of total revenue and 47.1% of Group operating profit.
Point: ComfortDelgro can likely recover some of its margins from higher fuel costs by gradually increasing its diesel pump prices following a successful taxi fare hike. At the same time, the Group can also look forward to a likely fare hike with the PTC review in August, which should help lift domestic bus margins. This set of results does vindicate the Group’s strategy of growing its overseas businesses, which better maintained their margins due to the cost-plus model that is adopted, particularly by the bus operations. Factoring in lower margins, we have cut our FY08 and FY09 earnings forecasts by 8.2% and 7.5% respectively.
Relevance: We maintain our BUY call as we still believe in the Group’s long-term prospects and the Group’s strong balance sheet means there remains potential for earnings accretive acquisitions. CD offers an attractive prospective net yield of 5.5%. We roll over our valuation to 4.5% target net yield on FY09 eamings, giving a 1-year target of S$2.20.
ComfortDelgro – BT
ComfortDelGro Q1 net profit slips 9.4%
RISING fuel costs put the brakes on ComfortDelGro Corp’s net profit for the first quarter ended March 31, causing it to fall 9.4 per cent to $50.2 million.
The world’s second largest land transport group blamed the past few months’ sharply increasing fuel prices on a $17.5 million rise in its energy and fuel costs. It added that a loss was also incurred in the sale of diesel to the company’s taxi drivers as large discounts were still being extended to them.
But the land transport giant saw Q1 revenue rise 5.8 per cent to $753.5 million, thanks to strong contributions from both its local and overseas operations. The group said growth was broad-based, with most of its businesses chalking up increases in turnover.
ComfortDelGro’s overseas operations accounted for 44.3 per cent of turnover and 47.1 per cent of operating profit.
‘It has been a difficult quarter with oil prices continually reaching new highs,’ said ComfortDelGro MD and group CEO Kua Hong Pak in a statement. ‘But we remain focused on growing our businesses. Indeed, our various operations around the world remain sound, with most showing good growth at the top line.’
First-quarter turnover for the bus business rose 5.7 per cent to $378.6 million on higher contributions from the group’s operations in Australia and China. Overseas bus operations made up 59 per cent of total group bus turnover.
At listed unit SBS Transit, net profit for the first quarter ended March 31 fell 10.2 per cent to $15.3 million on increases in fuel costs, depreciation and premises costs. But revenue rose 8.4 per cent to $176.6 million mainly due to higher bus and rail revenue, and higher rental income.
Earnings per share for SBS’s Q1 was 4.96 cents, down from the previous corresponding quarter’s 5.58 cents. The unit did not declare any dividend for Q1. The final tax-exempt (one-tier) dividend of 3.25 cents per share which SBS earlier declared for the year ended Dec 31, 2007, will be paid on May 28.
ComfortDelGro’s Q1 turnover from the taxi business was up 6 per cent to $233.9 million. In China, taxi’s turnover rose 13.6 per cent to $26.8 million on contributions from its Nanjing operations, which were acquired last August, as well as increases in fleet size in Nanning and Chengdu.
In Singapore, taxi’s turnover was up 12.2 per cent to $147.6 million mainly because of an increase in cashless transactions. But the group’s diesel business posted an operating loss of $6.3 million – in contrast to an operating profit of $6.4 million a year ago – due to diesel discounts for its taxi drivers.
As for the rail business, Q1 turnover rose 14.2 per cent to $25.7 million as the average daily ridership for the North-east MRT Line jumped 14.7 per cent to 292,000, and that on the Punggol and Sengkang LRTs increased 12.9 per cent to 42,000.
ComfortDelGro’s Q1 earnings per share was 2.41 cents, down from last year’s 2.67 cents. Net asset value per ordinary share was 73.35 cents, up from Q1 2007’s 72.44 cents. No dividend has been declared by the group.
Looking ahead, Mr Kua said the global economic outlook remained ‘very uncertain and a more widespread decline in global economic activities cannot be ruled out’.
‘Inflationary cost pressures will be felt more keenly and oil prices are likely to remain volatile and high,’ he said.
ComfortDelGro’s share price ended unchanged at $1.76 yesterday, while SBS Transit closed one cent higher at $2.22.
ComfortDelgro – UOBKH
Setting a new target for oversea revenue contribution
ComfortDegro has just announced a new target, ie, 70% of turnover to be contributed by oversea markets in the next five to seven years. This is up from the previous 50% target set a few years back, which the company is well on track to realize. At this juncture, oversea markets contributed 47.0% and 46.2% of turnover and operating profit respectively in FY07, vs 44.6% and 42.3% in FY06.
Strong execution capabilities in oversea expansion. ComfortDegro has grown its oversea markets via both organic growth and acquisition. Turnover of oversea markets grew at a CAGR of 15.4% from 2003 to 2007, significantly higher than that of its home market (Singapore) at 4.7%. Push for a wider use of public transport is an important approach by governments to alleviate traffic congestion and pollution issues linked with massive private vehicle ownership. We believe this bodes well for public transport operators like ComfortDegro in the long term.
BUY ComfortDegro. We like the company’s diversified exposure in land transport business. Its decent 6-7% dividend yield has limited downside risks under current volatile market environments. (Target price under review. previous: S$2.46)
ComfortDelgro – BT
ComfortDelGro sets new goal of 70% overseas revenue
TO mark its fifth anniversary, ComfortDelGro Corp has set a target of achieving 70 per cent of annual turnover from overseas operations within five to seven years.
When the land transport giant was formed five years ago after the merger of Comfort Group and DelGro Corp, its mid-term target was to derive 50 per cent of total revenue from abroad. It is almost there. For the year ended Dec 31, 2007, overseas operations accounted for 47 per cent of group turnover and 46 per cent of group operating profit.
Its record overseas turnover of $1.4 billion was thanks to strong performances by bus operations in the UK, Sydney and Shenyang, and taxi operations in the UK and Beijing.
‘As we celebrate our fifth anniversary, we have to ask ourselves how we are going to sustain and further grow our business in today’s highly competitive and fast-changing landscape,’ ComfortDelGro chairman Lim Jit Poh said at a gala dinner yesterday.
‘My board is not just satisfied with our present achievement. We are hungry and want to do more. We are now setting ourselves a new target, increasing our overseas turnover to the next hurdle of 70 per cent of our total turnover within the next five to seven years.’
He said that although this will not be easy to achieve because the group is now starting from a much larger base, it is a target that must be set.
Since its formation, ComfortDelGro has adopted an aggressive overseas expansion strategy to become the world’s second-largest land transport company today. It has a global fleet of more than 41,000 vehicles and 22,000 staff. It operates in 23 cities across seven countries – Singapore, China, the UK, Ireland, Australia, Vietnam and Malaysia. In terms of the number of countries, the group has added only one – Australia – compared with five years ago. But the difference is that its presence in each country today is huge.
ComfortDelGro has so far invested $791.9 million overseas. The bulk, $309 million, is in China, followed closely behind by the UK and Ireland with $294 million. Australia is a fast-growing market and third at $176.5 million, while Vietnam and Malaysia account for $8.5 million and $4 million respectively.
‘From humble beginnings, ComfortDelGro Corporation has grown into a multi-modal, multinational land transport operator,’ said Minister in the Prime Minister’s Office Lim Boon Heng, who was guest-of-honour at yesterday’s dinner. ‘It is not just number one in Singapore. It is number two in the world.’
He called ComfortDelGro a ‘Singapore success story’ and said it has the best global footprint: ‘It has grown its businesses and positioned itself well in different markets. It has stayed focused on its core business and built upon its strengths to the benefit of the communities in which it serves.’