Category: ComfortDelgro
ComfortDelgro – DBSV
Another record year
- Record 4Q/FY13 profits within expectations
- Dividend payout inched up to 56.5% with 4 Scts final DPS (FY13: 7Scts vs FY12: 6.4 Scts)
- Healthy balance sheet to pursue growth via M&As; medium term target of 60% overseas contribution
- Steady profile; maintain BUY rating and S$2.19 TP
4Q13 results in line. 4Q13 net profit inched up 4% y-o-y to S$59.9m, taking FY13 net profit to a record S$263m (+6% yo-y), despite cost challenges, particularly in Singapore. 4Q revenue grew 9.5% y-o-y driven by all segments except Automotive Engineering. However, EBIT margin dipped 1ppt to 9.6% on higher operating expenses (+10.7%), largely staff costs (+17.7%), fuel & electricity (+21.1%), but there were partly offset by lower materials & consumables costs (-10%).
Higher dividend payout. The Group declared 4 Scts DPS in the quarter, taking full year dividends to 7 Scts. This implies 56.5% payout (FY12: 6.4 Scts, 54.2% payout).
Healthy balance sheet to pursue growth. The Group is in net cash position which means it has headroom to pursue growth and/or raise dividend payouts. Either option could be a share price catalyst. Management has a medium term (5-7 years) target to increase overseas profit contribution to 60%, from 48% currently; we believe the Group would achieve this via M&As. We like the Group’s strategy and track record of bite-sized accretive acquisitions.
Maintain BUY for steady profile; TP S$2.19. Despite challenges at its Singapore bus and rail operations as well as a rising cost environment, the Group has been delivering steady growth. We attribute this to its geographical and business diversification. This differs markedly from its local peer, SMRT. Valuation remains reasonable at 15x FY14F PE.
ComfortDelgro – DBSV
Another record year
- Record 4Q/FY13 profits within expectations
- Dividend payout inched up to 56.5% with 4 Scts final DPS (FY13: 7Scts vs FY12: 6.4 Scts)
- Healthy balance sheet to pursue growth via M&As; medium term target of 60% overseas contribution
- Steady profile; maintain BUY rating and S$2.19 TP
4Q13 results in line. 4Q13 net profit inched up 4% y-o-y to S$59.9m, taking FY13 net profit to a record S$263m (+6% yo-y), despite cost challenges, particularly in Singapore. 4Q revenue grew 9.5% y-o-y driven by all segments except Automotive Engineering. However, EBIT margin dipped 1ppt to 9.6% on higher operating expenses (+10.7%), largely staff costs (+17.7%), fuel & electricity (+21.1%), but there were partly offset by lower materials & consumables costs (-10%).
Higher dividend payout. The Group declared 4 Scts DPS in the quarter, taking full year dividends to 7 Scts. This implies 56.5% payout (FY12: 6.4 Scts, 54.2% payout).
Healthy balance sheet to pursue growth. The Group is in net cash position which means it has headroom to pursue growth and/or raise dividend payouts. Either option could be a share price catalyst. Management has a medium term (5-7 years) target to increase overseas profit contribution to 60%, from 48% currently; we believe the Group would achieve this via M&As. We like the Group’s strategy and track record of bite-sized accretive acquisitions.
Maintain BUY for steady profile; TP S$2.19. Despite challenges at its Singapore bus and rail operations as well as a rising cost environment, the Group has been delivering steady growth. We attribute this to its geographical and business diversification. This differs markedly from its local peer, SMRT. Valuation remains reasonable at 15x FY14F PE.
Land Transport – MayBank Kim Eng
Imminent Changes To Bus Operating Model
Current bus model is not sustainable; Tender system a possibility. With stagnating bus fares and rising cost from inflationary pressure, the two existing operators have been running loss-making operations for years. Under a business model that is financially unviable, we believe that SMRT and SBS Transit, a subsidiary of ComfortDelGro, would be reluctant to renew their bus licences when they are due in 2016. Hence, a change to the bus model is imminent, in our view, in favour of a tender system to award packages of service contracts. We believe that the Land Transport Authority (LTA) is currently evaluating the merits of a tender system, as evident from the tender system used to award service contracts since the start of the year.
Tendering system would likely reverse losses – upside to profits. In the near term, switching to a tender system will be positive for the Public Transport Operators (PTO), as losses at their bus units will reverse. The future profitability of the bus business would depend on the bids placed during tenders. Our analysis suggests that our profit estimates for next year would be raised by 18-22%, if the PTOs retain their current market share and their bus units achieve a 10% margin under the new business model
Key negatives for PTOs under new system. It appears that under a tendering system, the PTOs will be able to reverse losses and turn profitable. So what is the catch? We caution that there are at least three areas that would be negative for the two existing operators under a tender system: heightened competition, higher cost to ensure better service standards and shorter service contracts.
Net effect should still be positive for existing PTOs. While competition from new entrants would pose a threat, we believe that existing operators would still have an edge over new entrants with their scale of operations. Even if the existing operators do concede market share, their profitability under a tender system would still be an improvement over their current loss-making operations.
Sticking with current calls: BUY CDG, SELL SMRT. While switching to a tender system is positive for both PTOs, we maintain our preference for CDG over SMRT. We believe that our forecasts for significantly higher gearing at SMRT over the next few years will be reflected in lower stock valuations. Furthermore, PER valuations for CDG are relatively more attractive under various bus margin scenarios on a tender system. Reiterate BUY CDG, SELL SMRT.
ComfortDelgro – MayBank Kim Eng
More Opportunities To Grow Down Under
Successful re-tender of Region 4 in Australia. New South Wales (NSW) Minister for Transport recently announced the award of new metropolitan bus service contracts. ComfortDelGro’s Australia bus unit CDCBus again won the contract to operate Region 4, which comprises the Blacktown, Rouse Hill, Castle Hill, Dural and Parramatta regions. This effectively removes investors’ earlier fears that CDG could lose the service contract to this route, which constitutes one-third of its bus operations in Australia and involves around 500 buses.
Scope for privatisation of bus routes in NSW. Sydney Metropolitan’s bus network is made up of 15 contract regions and managed by different operators. Contract Regions 6-9 are operated by the State Transit Authority (STA) while the other regions are run by Private Bus Operators (PBO). Though the state-run operations account for only four of the 15 contract regions, they chalked up 76% of the passenger journeys clocked in FY12. With the majority of the bus transport services still managed by the state, we believe there is significant scope for privatisation of bus routes in the future. This would represent a major revenue opportunity for private operators such as CDCBus.
NSW public transport pie to continue growing. According to the NSW Long Term Transport Master Plan, Sydney’s population is expected to increase by 30% to 5.6m in 2031, which would drive daily trips made to 21.2m from 16.2m currently, a rise of 31%. With the proportion of commuters using public transport to get to work projected to increase by 3% in 2031, we expect the public transport market in NSW to continue growing. The NSW government has also stressed the importance of Sydney’s bus network to its public transport infrastructure and aims to increase bus services to satisfy the growing demand for bus travel. Hence, with expansion of the bus service market, we see room for CDG to increase its presence in the region.
Attractive valuations beckon, maintain BUY. Following the recent market correction, valuations for CDG are now below its historical average multiples of 16x PER. With acquisition-led growth driving firm earnings over the coming quarters, we expect the stock’s valuation to trade higher and keep our TP unchanged at SGD2.33, pegged at 18x FY14F PER. Maintain BUY.
ComfortDelgro – MayBank Kim Eng
More Opportunities To Grow Down Under
Successful re-tender of Region 4 in Australia. New South Wales (NSW) Minister for Transport recently announced the award of new metropolitan bus service contracts. ComfortDelGro’s Australia bus unit CDCBus again won the contract to operate Region 4, which comprises the Blacktown, Rouse Hill, Castle Hill, Dural and Parramatta regions. This effectively removes investors’ earlier fears that CDG could lose the service contract to this route, which constitutes one-third of its bus operations in Australia and involves around 500 buses.
Scope for privatisation of bus routes in NSW. Sydney Metropolitan’s bus network is made up of 15 contract regions and managed by different operators. Contract Regions 6-9 are operated by the State Transit Authority (STA) while the other regions are run by Private Bus Operators (PBO). Though the state-run operations account for only four of the 15 contract regions, they chalked up 76% of the passenger journeys clocked in FY12. With the majority of the bus transport services still managed by the state, we believe there is significant scope for privatisation of bus routes in the future. This would represent a major revenue opportunity for private operators such as CDCBus.
NSW public transport pie to continue growing. According to the NSW Long Term Transport Master Plan, Sydney’s population is expected to increase by 30% to 5.6m in 2031, which would drive daily trips made to 21.2m from 16.2m currently, a rise of 31%. With the proportion of commuters using public transport to get to work projected to increase by 3% in 2031, we expect the public transport market in NSW to continue growing. The NSW government has also stressed the importance of Sydney’s bus network to its public transport infrastructure and aims to increase bus services to satisfy the growing demand for bus travel. Hence, with expansion of the bus service market, we see room for CDG to increase its presence in the region.
Attractive valuations beckon, maintain BUY. Following the recent market correction, valuations for CDG are now below its historical average multiples of 16x PER. With acquisition-led growth driving firm earnings over the coming quarters, we expect the stock’s valuation to trade higher and keep our TP unchanged at SGD2.33, pegged at 18x FY14F PER. Maintain BUY.