ComfortDelgro – Phillip
Ridership update
•Rail & Bus ridership up 16.8% & 7.6% in 1QFY11
•Increasing cost of private car ownership to encourage the use of public transport
•Singapore’s listco <20% of ComfortDelGro’s (CDG) value
•Maintain Buy with target price of S$2.01
Ridership growth continues in Singapore’s Rail & Bus business
SBST’s rail ridership grew by 16.8% y-y to 42.5mn passengers, while bus ridership grew by 7.6% to 223.2mn passengers for 1QFY11. We believe that the North-East Line (NEL) will continue to record strong ridership due to the continued residential developments in the North-Eastern corridor. While we opine that SBST’s bus business faces long term challenges from Singapore’s growth in rail network, near term incentives to switch to public modes of transportation continue to aid its short term growth.
Disincentive for private mode of transport
We believe that the strong growth in both rail and bus ridership is a reflection of a structural shift in commuter’s choice from private to public modes of transport. Over the past 3 years, public transport fares remain largely unchanged, while the cost of private car ownership surged significantly by >20%. This is led by surging pump prices, as well as soaring COE prices. We opine that the cost of private car ownership will continue to stay high and result in significant switch from private to public transport.
Singapore is just one part of the Business
CDG offers a unique exposure to the global land transport business. CDG’s stake in SBST & VICOM, which gives the Group exposure to Singapore’s rail, bus and vehicle inspection & testing business, makes up <20% of the value in CDG. The remaining c.80% CDG comprise mainly of a growing global business. We attempt to account for the value in CDG by stripping out the value of two of its listed subsidiaries (list-co), SBST and VICOM, which CDG holds a 75% and 69% stake respectively. Despite a strong share price performance in the stock of VCM (+47%) and SBST (+13%) since the start of 2010, the stock price of CDG declined by 6% over the same period.
CDG ex-listco trades within a very tight P/E range
We examined the P/E valuation of CDG ex-listco over the past 5yrs and observed a very tight +/- 1 S.D. range of 16.3X-19.7X. If history is a good guide to the stock’s future performance, these mean reversion behaviour of the stock offers a range trading opportunity for investors. CDG ex-listco only twice traded significantly out of this range in the past 5 years: on the downside during the GFC (Oct-Dec08) and on the upside during the previous market peak (Apr-Aug07). Hence, we believe current valuation of 16.9X presents a good buying opportunity on CDG.
The Global expansion continues
CDG recently announced plans to set up its 3rd driving school, Chongqing Liangjiang ComfortDelGro Driver Training Co. Ltd, in China with an investment of RMB165mn (S$31.2mn). The new driving centre is expected to house 120 vehicles and has an initial capacity of 700students per month. The two existing driving centres, Chengdu ComfortDelGro Qing Yang Driving School and Chongqing ComfortDelGro Driving Training Co. Ltd, enrolled 4,200 and 9,660 students in 2010 respectively. At full capacity, we estimate that this new driving centre would contribute c.RMB12mn of revenue per year.
Valuation. We used a blended valuation model of DCF (COE: 8.2%, terminal g: 1%) and P/E (17X FY11e PATMI) to arrive at our target price of S$2.01. We kept our earnings estimates unchanged pending the release of 1QFY11 results on 13th May. With an upside of 30.8% to the last trading price, we maintain our Buy call on CDG.
ComfortDelgro – DMG
Invests S$31.2m in third driving school in China
Third driving school in China. ComfortDelGro (CD) has acquired a new site in Liangjiang New Business District, Western China, to establish its third driving school – Chongqing Liangjiang ComfortDelGro Driving Training Co (CLCDT). The site measures 44,693 sqm and will be ready by end of FY11. The three-storey building will comprise of a training centre, an administrative centre, a testing circuit, as well as a basement car park. The new school will provide driver training for saloon cars, buses as well as trucks. Total investment in the new driving school is expected to be RMB165m (S$31.2m). Upon completion, we estimate the new investment will contribute additional S$1-2m/year beginning FY12 (~0.4-0.8% of FY12 PATMI). Maintain BUY with unchanged TP of S$1.80.
Expect to house 120 vehicles and cater to initial monthly average of 700 students. During FY10, 13,860 Chinese students enrolled for CD’s two other driving school centres in China (Chengdu ComfortDelGro Qing Yang Driving School Co Ltd and Chongqing ComfortDelGro Driver Training Co Ltd). Given the FY10 EBIT contribution from CD’s China driving centres was S$1.6m, the average EBIT/student was ~S$115. Based on this, we estimate CLCDT will contribute ~S$1-2m/year beginning FY12. We think the earnings contribution from CLCDT could rise in the future once the number of student enrolment increases.
ComfortDelgro – DMG
Invests S$31.2m in third driving school in China
Third driving school in China. ComfortDelGro (CD) has acquired a new site in Liangjiang New Business District, Western China, to establish its third driving school – Chongqing Liangjiang ComfortDelGro Driving Training Co (CLCDT). The site measures 44,693 sqm and will be ready by end of FY11. The three-storey building will comprise of a training centre, an administrative centre, a testing circuit, as well as a basement car park. The new school will provide driver training for saloon cars, buses as well as trucks. Total investment in the new driving school is expected to be RMB165m (S$31.2m). Upon completion, we estimate the new investment will contribute additional S$1-2m/year beginning FY12 (~0.4-0.8% of FY12 PATMI). Maintain BUY with unchanged TP of S$1.80.
Expect to house 120 vehicles and cater to initial monthly average of 700 students. During FY10, 13,860 Chinese students enrolled for CD’s two other driving school centres in China (Chengdu ComfortDelGro Qing Yang Driving School Co Ltd and Chongqing ComfortDelGro Driver Training Co Ltd). Given the FY10 EBIT contribution from CD’s China driving centres was S$1.6m, the average EBIT/student was ~S$115. Based on this, we estimate CLCDT will contribute ~S$1-2m/year beginning FY12. We think the earnings contribution from CLCDT could rise in the future once the number of student enrolment increases.
TELCOs – BT
When roaming rates drop, S’pore telcos may pay a higher price
They have more to lose than their M’sian counterparts: analysts
SINGAPOREAN operators are likely to be hit harder than their Malaysian counterparts when the two countries start to ring in cheaper mobile roaming rates from next month.
This is because a higher proportion of their sales come from overseas calls. In addition, Singapore Telecommunications, StarHub and M1 have more inbound and outbound roaming usage on their networks in comparison to Malaysian operators, analyst firm DMG Research said in a report yesterday.
On Thursday, a two-year effort to curb the high cost of cellular roaming between Singapore and Malaysia finally bore fruit with both governments announcing that fees for making and receiving calls will be slashed by 20 per cent from next month and a further 10 per cent a year later.
The cost of sending text messages back home from across the causeway will be cut by 30 per cent in May and halved 12 months later.
Once fully implemented, it would mean that the cost of making a Singapore call from Malaysia would be slashed from 59 cents per minute currently to 46 cents in 2012. Sending an SMS would cost 30 cents by next May, compared with the prevailing rate of 60 cents per text message.
‘We estimate that roaming revenue makes up circa 10 to 25 per cent of Singapore telcos’ mobile revenue versus 8 to 10 per cent for Malaysian telcos,’ DMG said.
‘A reciprocal 20 per cent reduction in roaming tariffs between the two countries would slice off Singapore mobile revenue by 1 to 2 per cent compared to an estimated 0.5 to 0.9 per cent for Malaysian telcos, all else being equal,’ the company explained.
Malaysian operator Celcom had previously forecast its sales could shrink by 40 million ringgit (S$16.5 million) when the rate cuts are pushed through, while rival Digi said the impact on its revenue is marginal. Maxis on the other hand, expects sales to be hit to the tune of 6 million ringgit (S$2.5 million).
Local operators declined to reveal Malaysia’s contribution to their international services revenue but all three admitted the country is among their top mobile roaming destinations.
For its last financial year, SingTel derived $563 million from international call services while M1’s full-year revenue from this business segment stood at $129 million.
StarHub’s mobile roaming income is folded under its mobile sales, which stood at $302.7 million in 2010.
Instead of dragging down their top-line, local telcos say they are confident that the tariff reductions would instead boost their income by spurring greater usage.
‘We believe the downside on mobile revenues will be mitigated by the fact that operators actively share and swap minutes with one another,’ DMG added.
Other analysts BT spoke to also said local operators are likely to suffer a short-term hit but they should be no worse for wear in the long run.
This is the first time such a mobile roaming accord has been struck between two Asean member countries.
Authorities believe more could soon jump on the bandwagon, with Thailand being seen as the next likely candidate.
TELCOs – BT
When roaming rates drop, S’pore telcos may pay a higher price
They have more to lose than their M’sian counterparts: analysts
SINGAPOREAN operators are likely to be hit harder than their Malaysian counterparts when the two countries start to ring in cheaper mobile roaming rates from next month.
This is because a higher proportion of their sales come from overseas calls. In addition, Singapore Telecommunications, StarHub and M1 have more inbound and outbound roaming usage on their networks in comparison to Malaysian operators, analyst firm DMG Research said in a report yesterday.
On Thursday, a two-year effort to curb the high cost of cellular roaming between Singapore and Malaysia finally bore fruit with both governments announcing that fees for making and receiving calls will be slashed by 20 per cent from next month and a further 10 per cent a year later.
The cost of sending text messages back home from across the causeway will be cut by 30 per cent in May and halved 12 months later.
Once fully implemented, it would mean that the cost of making a Singapore call from Malaysia would be slashed from 59 cents per minute currently to 46 cents in 2012. Sending an SMS would cost 30 cents by next May, compared with the prevailing rate of 60 cents per text message.
‘We estimate that roaming revenue makes up circa 10 to 25 per cent of Singapore telcos’ mobile revenue versus 8 to 10 per cent for Malaysian telcos,’ DMG said.
‘A reciprocal 20 per cent reduction in roaming tariffs between the two countries would slice off Singapore mobile revenue by 1 to 2 per cent compared to an estimated 0.5 to 0.9 per cent for Malaysian telcos, all else being equal,’ the company explained.
Malaysian operator Celcom had previously forecast its sales could shrink by 40 million ringgit (S$16.5 million) when the rate cuts are pushed through, while rival Digi said the impact on its revenue is marginal. Maxis on the other hand, expects sales to be hit to the tune of 6 million ringgit (S$2.5 million).
Local operators declined to reveal Malaysia’s contribution to their international services revenue but all three admitted the country is among their top mobile roaming destinations.
For its last financial year, SingTel derived $563 million from international call services while M1’s full-year revenue from this business segment stood at $129 million.
StarHub’s mobile roaming income is folded under its mobile sales, which stood at $302.7 million in 2010.
Instead of dragging down their top-line, local telcos say they are confident that the tariff reductions would instead boost their income by spurring greater usage.
‘We believe the downside on mobile revenues will be mitigated by the fact that operators actively share and swap minutes with one another,’ DMG added.
Other analysts BT spoke to also said local operators are likely to suffer a short-term hit but they should be no worse for wear in the long run.
This is the first time such a mobile roaming accord has been struck between two Asean member countries.
Authorities believe more could soon jump on the bandwagon, with Thailand being seen as the next likely candidate.