SGX Yield Stock

Slowly but surely delivering

• A record 3Q12 net profit – within expectations
  
• EBIT margins remained stable despite cost challenges
  
• Trades below historical average even with YTD share price appreciation of c.19%
  
• Maintain BUY, TP: S$1.86. Preferred land transport counter over SMRT
  

3Q12 within expectations. 3Q12’s net profit reached a record of S$72.8m, which was up by 5.4% y-o-y, on the back of a 2.7% growth in revenue to S$900.8m. Revenue growth was broad-based driven, by all business segments except Automotive Engineering. 9M12 profits account for 77% of our FY12F forecasts, roughly in line with previous year (1H11 76% of FY11).

EBIT margins remained at 13%. EBIT margins remained at 13% even though the group operates in a higher cost environment. This was helped by mainly lower material and consumables (-10.6%) and energy & fuel (-6.2%), offset by higher staff costs (+5.9%), contract services (+14.5%) and repair & maintenance (+8.1%). Management has hedged a substantial portion of its energy and fuel needs into FY13.

Preferred land transport counter, Maintain BUY with TP of S$1.86. We continue to like CD for its stable earnings growth profile, geographical diversification despite challenges for its bus business in Singapore and start up costs for rail (DTL). We expect its diversification to aid in buffering the impact from weaker segments. Despite rising by c.19.4% YTD, the counter still trades -0.5 std dev below its historical average of c.15x, and is preferred over SMRT which trades at a higher c.18x FYE Mar14 PE. We also believe it has the ability to further increase its dividend payout ratio (FY11: 53%), and should be a catalyst for the stock price should this materialis. We are currently assuming a conservative payout ratio of only 55% in our forecasts.

Delivering the Goods

Positive 3QFY12 results delivered. ComfortDelGro (CDG) delivered a positive set of 3QFY12 results, recording a 5.4% YoY increase (+SGD3.7m) in PATMI to SGD72.8m. These results were largely in line with expectations given that 9MFY12 PATMI comprised 78-79% of ours and consensus’ full-year estimates, and noting that 4Q has been a historically weaker quarter. We maintain our BUY call on CDG as our preference in the Singapore Land Transport sector, Target Price unchanged at SGD1.94.

Taxis once again lead profit growth. CDG’s 3QFY12 operating profit growth of 2.8% (+SGD3.2m) YoY was boosted by its taxi segment which showed an improvement of 8% (+SGD3.0m). In particular, the Singapore taxi segment drove the profit growth, as it was a beneficiary of higher rental income from replacement taxis and a larger fleet, as well as a higher volume of cashless transactions.

Buses and Rail bring up the rear. CDG’s bus business recorded a marginal operating profit growth of 1% YoY (+SGD0.6m), primarily helped by its UK and Australia businesses growing 6% and 2% respectively. The rail segment was the poorest performer, showing a 63% drop YoY (-SGD4.5) in operating profit, caused by start-up staff costs of the Downtown Line and higher repair and maintenance costs.

Outlook of revenue growth. Management’s revenue outlook remained upbeat, as it expects revenue to grow or at least be maintained in all segments except its bus business in China (divestment of Shenyang CDG) and its taxi business in UK (UK austerity measures).

Maintain BUY, reiterate preference over SMRT. We continue to prefer CDG in the Singapore land transport sector for its diversified business model, which not only provides additional avenues for growth, but also shields it from country-specific challenges (eg: Singapore). We leave our forecasts largely intact, and reiterate our BUY call and Target Price of SGD1.94, which is pegged to 16x FY13 PER.

Delivering the Goods

Positive 3QFY12 results delivered. ComfortDelGro (CDG) delivered a positive set of 3QFY12 results, recording a 5.4% YoY increase (+SGD3.7m) in PATMI to SGD72.8m. These results were largely in line with expectations given that 9MFY12 PATMI comprised 78-79% of ours and consensus’ full-year estimates, and noting that 4Q has been a historically weaker quarter. We maintain our BUY call on CDG as our preference in the Singapore Land Transport sector, Target Price unchanged at SGD1.94.

Taxis once again lead profit growth. CDG’s 3QFY12 operating profit growth of 2.8% (+SGD3.2m) YoY was boosted by its taxi segment which showed an improvement of 8% (+SGD3.0m). In particular, the Singapore taxi segment drove the profit growth, as it was a beneficiary of higher rental income from replacement taxis and a larger fleet, as well as a higher volume of cashless transactions.

Buses and Rail bring up the rear. CDG’s bus business recorded a marginal operating profit growth of 1% YoY (+SGD0.6m), primarily helped by its UK and Australia businesses growing 6% and 2% respectively. The rail segment was the poorest performer, showing a 63% drop YoY (-SGD4.5) in operating profit, caused by start-up staff costs of the Downtown Line and higher repair and maintenance costs.

Outlook of revenue growth. Management’s revenue outlook remained upbeat, as it expects revenue to grow or at least be maintained in all segments except its bus business in China (divestment of Shenyang CDG) and its taxi business in UK (UK austerity measures).

Maintain BUY, reiterate preference over SMRT. We continue to prefer CDG in the Singapore land transport sector for its diversified business model, which not only provides additional avenues for growth, but also shields it from country-specific challenges (eg: Singapore). We leave our forecasts largely intact, and reiterate our BUY call and Target Price of SGD1.94, which is pegged to 16x FY13 PER.