SLF Sell-Down Presents Opportunity

Singapore Labour Foundation (SLF), ComfortDelGro’s (CD) biggest shareholder is paring down its stake via a block trade of 170m shares worth c.SGD330m. SLF’s stake will fall c.8ppt to c.3.9%. CD’s share price fell 12% on Thursday, which we believe presents a good buying opportunity. We are not concerned by the sell-down as fundamentals remain strong. Maintain BUY and TP of SGD2.25.

12% sell-down presents a good opportunity to accumulate. CD’s share price fell 12% last Thursday following the paring down of SLF’s stake. We think this sell-down is unwarranted given that company fundamentals remain intact, and this presents a good entry point for investors looking to accumulate.

This could simply be a timely exit for SLF. SLF is a statutory board of the Ministry of Manpower (MOM) that aims to develop Labour Movement that support Singapore’s growth as well as the well-being of working people in Singapore. As CD’s overseas businesses grew and now accounting for 46% of group operating profit, coupled with CD’s aim to hit 50% profit contribution from overseas, we think that SLF’s involvement with CD could be less relevant now. Moreover, with the recent 32% six month run up in share price (22 May 13 close), we think SLF simply sees this period as an opportunistic time to exit.

No change to business fundamentals, no reason for sell-down. We understand that SLF had been a passive shareholder holding one nonexecutive board seat. We believe the fundamentals of CD remain unchanged and still remain positive on its overseas growth potential to drive earnings.

CD remains our preferred pick. At a FY13 P/E of 15.5x, CD is still more attractive than SMRT’s 24.5x FY14 P/E (FYE Mar). We like CD’s strong overseas network, which enhances overseas growth prospects versus SMRT which still faces cost related challenges.

SLF Sell-Down Presents Opportunity

Singapore Labour Foundation (SLF), ComfortDelGro’s (CD) biggest shareholder is paring down its stake via a block trade of 170m shares worth c.SGD330m. SLF’s stake will fall c.8ppt to c.3.9%. CD’s share price fell 12% on Thursday, which we believe presents a good buying opportunity. We are not concerned by the sell-down as fundamentals remain strong. Maintain BUY and TP of SGD2.25.

12% sell-down presents a good opportunity to accumulate. CD’s share price fell 12% last Thursday following the paring down of SLF’s stake. We think this sell-down is unwarranted given that company fundamentals remain intact, and this presents a good entry point for investors looking to accumulate.

This could simply be a timely exit for SLF. SLF is a statutory board of the Ministry of Manpower (MOM) that aims to develop Labour Movement that support Singapore’s growth as well as the well-being of working people in Singapore. As CD’s overseas businesses grew and now accounting for 46% of group operating profit, coupled with CD’s aim to hit 50% profit contribution from overseas, we think that SLF’s involvement with CD could be less relevant now. Moreover, with the recent 32% six month run up in share price (22 May 13 close), we think SLF simply sees this period as an opportunistic time to exit.

No change to business fundamentals, no reason for sell-down. We understand that SLF had been a passive shareholder holding one nonexecutive board seat. We believe the fundamentals of CD remain unchanged and still remain positive on its overseas growth potential to drive earnings.

CD remains our preferred pick. At a FY13 P/E of 15.5x, CD is still more attractive than SMRT’s 24.5x FY14 P/E (FYE Mar). We like CD’s strong overseas network, which enhances overseas growth prospects versus SMRT which still faces cost related challenges.

SLF sale does not alter fundamentals

ComfortDelGro’s shares tumbled by 13% today on news of a stake sale by its major shareholder, Singapore Labour Foundation. We believe the market’s knee-jerk selling is overdone and the share price could bounce in the near term.

Nevertheless, we maintain our fundamental Neutral rating, EPS and S$1.94 target price (DCF, 7.3% WACC) as challenging domestic operations and margin compression from higher opex continue to call for caution.

What Happened

ComfortDelGro’s share price skidded 13% today on news that its major shareholder, Singapore Labour Foundation (SLF),trimmed its stake from 12% to 4%.SLF placed out its shares at S$1.94apiece, at the low end of its reported S$1.94-2.03 offer range. The identity of the buyers remainsunknown, but we think they could be long-term investors. Regulatory filings will be made by 28 May, should there be changes to CD’s substantial shareholders.

What We Think

CD’s share price has fallen below its S$1.94 placement price. We think the pullback is overdone and the shares may rebound in the near term, in view of :1) CD’s unchanged fundamentals with defensive earnings; 2)3% dividend yield support; and 3) the absence of dilution from the placement, which involves only vendor shares. While the reasons for SLF’s divestment are unknown, we understand that its ownership of CD’s shares was legacy-related. SLF has, over the years, been paring down its stake in CD, to 4% today.

What You Should Do

Further deterioration in CD’s share price could present opportunities to accumulate. We would turn buyers at S$1.82 or 14x CY14 P/E, its 5-year mean.

SLF sale does not alter fundamentals

ComfortDelGro’s shares tumbled by 13% today on news of a stake sale by its major shareholder, Singapore Labour Foundation. We believe the market’s knee-jerk selling is overdone and the share price could bounce in the near term.

Nevertheless, we maintain our fundamental Neutral rating, EPS and S$1.94 target price (DCF, 7.3% WACC) as challenging domestic operations and margin compression from higher opex continue to call for caution.

What Happened

ComfortDelGro’s share price skidded 13% today on news that its major shareholder, Singapore Labour Foundation (SLF),trimmed its stake from 12% to 4%.SLF placed out its shares at S$1.94apiece, at the low end of its reported S$1.94-2.03 offer range. The identity of the buyers remainsunknown, but we think they could be long-term investors. Regulatory filings will be made by 28 May, should there be changes to CD’s substantial shareholders.

What We Think

CD’s share price has fallen below its S$1.94 placement price. We think the pullback is overdone and the shares may rebound in the near term, in view of :1) CD’s unchanged fundamentals with defensive earnings; 2)3% dividend yield support; and 3) the absence of dilution from the placement, which involves only vendor shares. While the reasons for SLF’s divestment are unknown, we understand that its ownership of CD’s shares was legacy-related. SLF has, over the years, been paring down its stake in CD, to 4% today.

What You Should Do

Further deterioration in CD’s share price could present opportunities to accumulate. We would turn buyers at S$1.82 or 14x CY14 P/E, its 5-year mean.

Aussie Bus Buy Value Accretive

ComfortDelGro (CD) announced that it is buying Driver Group’s Melbourne bus business for AUD22m (SGD27m). The acquisition’s estimated EV/EBITDA is 5.8x while CD is currently trading at 6.5x FY13 EV/EBITDA. As we are positive on the acquisition, we raise our FY13/14 earnings forecasts by 0.6%/1.1%. Maintain BUY, with a higher SGD2.25 TP (vs SGD2.20 previously), based on DCF (WACC: 9.0%; TGR: 2.5%).

A value accretive acquisition. We think the acquisition offers good value to CD as the purchase was done at 5.8x EV/EBITDA, lower than CD’s FY13 EV/EBITDA of 6.5x. We note that CD’s Australian bus segment commands lucrative EBIT margins of 19% – the highest amongst its bus segments. The EBIT margin for this acquisition is estimated at 22%. CD’s Australia bus unit is also its biggest contributor to bus profits, making up 22% of group operating profit.

Only buying the metropolitan bus routes and fleet. The Driver Group is a family-owned company based in Melbourne. It operates metropolitan bus routes in Melbourne’s eastern suburbs, as well as operates school services, tourist shuttles and charter services. However, CD is only buying the group’s five metropolitan bus routes and its fleet of 42 vehicles. CD is expected to gain some synergy from operating from its existing depots in Oakleigh.

Still positive on group’s overseas businesses. As the rail and bus operators in Singapore continue to face challenges, we are positive on the growth potential of CD’s overseas businesses, which make up 46% of operating profit and fetch higher operating margins of 13.2% (versus 10% for Singapore). Management is targeting for its overseas profit contributions to hit the 50% level.

Stock still offers value. At a FY13 P/E of 16.8x, CD is still more attractive than SMRT’s 25.0x FY14 P/E (FYE Mar). We like CD’s strong overseas network, which enhances its overseas growth prospects. We view this as a distinct advantage given the challenges facing the domestic land transport market.