SGX Yield Stock

As stable as it can get

At a Glance

• 2Q10 net profit (S$58.2m) up a marginal 2% yoy, as expected

• Singapore bus ridership up 4% despite CCL opening – better than expected

• FY10-11F revised by 3% on higher bus ridership

• ComfortDelgro offers better value at 14.5x PE vs SMRT’s 19x, but no compelling catalyst; Maintain Hold, TP at S$1.65

Comment on Results

2Q10 net profit +2% as expected. 2Q net profit was up marginally by 2% y-o-y to S$58.2m, as topline grew 4.1% to S$789.3m mainly driven by Singapore bus, taxi and Australia bus operatations. Operating margins inched up to 12.6%, as operating expenses grew by smaller 3.9% vis-à-vis revenue. Bulk of increase in expenses came from fuel/energy (+22% yoy). Net profit showed a smaller growth of 2% on higher finance costs (S$8.6m, +18%) lower JV/Associates income (S$1.4m, -18%). A 2.7 S cts interim dividend was declared (1H09: 2.63 Scts), equating to 50% payout ratio.

More fuel hedges in place in 3Q (vs 2Q), but not beyond that. We understand that management had hedged c.50%/15% of Singapore/UK requirements in July/Aug and will look to put in more hedges.

Singapore bus ridership up 4%, despite CCL, better than originally expected. Despite the opening of the Circle Line Stages 1&2 on 17 Apr, Singapore’s bus ridership grew 4% yoy in 2Q. We think the cannibalization effect may not be as severe as originally feared. We are more optimistic on bus ridership, nudging our growth assumption to 4%, from 1.5% previously.

$38.8m Swan Taxis acquisition pending approval. The Group’s bid for Perth based Swan Taxis is awaiting approvals, expected in 4Q. We have not factored in potential contribution, but estimate this could add c.2% to FY11F profits, if it materialises.

Recommendation

More value in ComfortDelgro vs SMRT, but no compelling upside/catalyst. Maintain Hold, TP: S$1.65. Between the 2 land transport counters, we prefer ComfortDelGro over SMRT (FV, TP: S$1.88) given its more attractive valuation at c.14.5x PE vs SMRT’s 19x (FYE Mar’11). But, we do not see any compelling catalyst at current point to drive its share price, given the moderate growth in the ensuing quarters. As such, we maintain Hold, TP S$1.65 based on average of 15x PE and DCF.

Steady performer

Event

• ComfortDelgro reported in‐line 2Q10 results. Net profit rose by 1.6% YoY and 7% QoQ, powered by the Australian bus operations (+34%), the China driving centres (+15.5%) and the Singapore rail (+15%), taxi (+9%) and bus (+4%) services. The bottom line was hardly affected by forex translation as the weakness in the pound and the renminbi was offset by the strength in the A$. Operating margin improved despite

higher energy costs as revenue rose faster than overall operating expenses. Interim dividend was higher at 2.7 cents a share.

Our View

• ComfortDelgro’s train and taxi services in Singapore will continue to thrive on the Republic’s vibrant tourism scene. Train revenue in 2Q responded well to a 14% jump in ridership on the North East Line, which ends at HarbourFront and Punggol. The taxi division benefited from more cashless transactions and a larger fleet despite pricier certificates of entitlement as scrapping of older taxis was delayed.

• We expect relatively benign energy cost and currency risk this year, with the 22% jump in diesel and electricity costs so far offset by revenue growth (opex up only 3.9%). We expect Comfort will be able to hedge its diesel requirements at lower prices with the recent fall in crude. Similarly, it has US$ and the pound covered at good rates.

• More investments in Australia are being planned. The bid for Swan Taxi in Western Australia will continue until mid‐Sept. Two weeks into the bid, it already has 40% of the 90% acceptance needed. It will also require the nod from the Australian Competition and Consumer Commission. If successful, we expect a 1.5% boost to FY11 earnings.

Action & Recommendation

We maintain our BUY call on ComfortDelgro with a target price of $1.87, conservatively pegged to 17x current‐year earnings. We expect earnings upside ahead, with catalysts from improvement in the UK economy and more acquisitions overseas, especially in Australia and China.

Steady performer

Event

• ComfortDelgro reported in‐line 2Q10 results. Net profit rose by 1.6% YoY and 7% QoQ, powered by the Australian bus operations (+34%), the China driving centres (+15.5%) and the Singapore rail (+15%), taxi (+9%) and bus (+4%) services. The bottom line was hardly affected by forex translation as the weakness in the pound and the renminbi was offset by the strength in the A$. Operating margin improved despite

higher energy costs as revenue rose faster than overall operating expenses. Interim dividend was higher at 2.7 cents a share.

Our View

• ComfortDelgro’s train and taxi services in Singapore will continue to thrive on the Republic’s vibrant tourism scene. Train revenue in 2Q responded well to a 14% jump in ridership on the North East Line, which ends at HarbourFront and Punggol. The taxi division benefited from more cashless transactions and a larger fleet despite pricier certificates of entitlement as scrapping of older taxis was delayed.

• We expect relatively benign energy cost and currency risk this year, with the 22% jump in diesel and electricity costs so far offset by revenue growth (opex up only 3.9%). We expect Comfort will be able to hedge its diesel requirements at lower prices with the recent fall in crude. Similarly, it has US$ and the pound covered at good rates.

• More investments in Australia are being planned. The bid for Swan Taxi in Western Australia will continue until mid‐Sept. Two weeks into the bid, it already has 40% of the 90% acceptance needed. It will also require the nod from the Australian Competition and Consumer Commission. If successful, we expect a 1.5% boost to FY11 earnings.

Action & Recommendation

We maintain our BUY call on ComfortDelgro with a target price of $1.87, conservatively pegged to 17x current‐year earnings. We expect earnings upside ahead, with catalysts from improvement in the UK economy and more acquisitions overseas, especially in Australia and China.

Margin improvement despite higher fuel cost

• ComfortDelGro Ltd’s (CD) 2QFY10 results were in line with expectations. While net profit merely inched up by 2% YoY to S$58.2mil, we are encouraged by significant business segments in Singapore and overseas, which showed operational improvements.

• 2QFY10 results were dampened by depreciation of 9% YoY in the Pound Sterling and 4% YoY in Reminbi, but it benefitted from a 10% YoY appreciation in the Australian dollar.

• Singapore accounted for 57% of revenue and 62% of operating profit, Britain 22% and 12%, Australia 12% and 15%, and China 9% and 10%, respectively.

• Ridership in Singapore grew 4% QoQ for bus to 212.1 million and 3% QoQ to 37.4 million for rail operations in 2QFY10.

• Australia bus operations enjoyed increased services which led revenue in local currency up 22% YoY. Bus revenues in China and Britain were also buoyed in local currency terms.

• Singapore bus accounts for 19% of group revenue, Britain 18%, Australia 12% and China 2%. Rail – which comprises the North-East Line (NEL) and Sengkang and Ponggol LRTs in Singapore, made up 4% of group revenue.

• Singapore Taxi which made up 22% of group revenue, improved 9% YoY on a larger operating fleet and higher volume of cashless transactions.

• Overseas, China taxi revenues also improved in local terms, but this could not offset the fall in British taxi business – which is still mired in a depressed corporate market.

• Despite a 22% YoY jump in fuel and electricity costs to S$61.5mil (making up 9% of total expenses) largely on higher oil price, operating margin improved to 12.6% in 2QFY10 (versus 12.5% in 2QFY09 and 11.8% in 1QFY10). All other cost items were reasonably contained.

• On balance, we maintain our forecast for 4% YoY p.a. growth at 10.9 cents Singapore EPS in FY10F and 11.4 cents EPS in FY11F.

• PE stands at 14.4x FY10F and 13.8x FY11F. We maintain our BUY rating with 20% upside to fair value of S$1.89/share.

Margin improvement despite higher fuel cost

• ComfortDelGro Ltd’s (CD) 2QFY10 results were in line with expectations. While net profit merely inched up by 2% YoY to S$58.2mil, we are encouraged by significant business segments in Singapore and overseas, which showed operational improvements.

• 2QFY10 results were dampened by depreciation of 9% YoY in the Pound Sterling and 4% YoY in Reminbi, but it benefitted from a 10% YoY appreciation in the Australian dollar.

• Singapore accounted for 57% of revenue and 62% of operating profit, Britain 22% and 12%, Australia 12% and 15%, and China 9% and 10%, respectively.

• Ridership in Singapore grew 4% QoQ for bus to 212.1 million and 3% QoQ to 37.4 million for rail operations in 2QFY10.

• Australia bus operations enjoyed increased services which led revenue in local currency up 22% YoY. Bus revenues in China and Britain were also buoyed in local currency terms.

• Singapore bus accounts for 19% of group revenue, Britain 18%, Australia 12% and China 2%. Rail – which comprises the North-East Line (NEL) and Sengkang and Ponggol LRTs in Singapore, made up 4% of group revenue.

• Singapore Taxi which made up 22% of group revenue, improved 9% YoY on a larger operating fleet and higher volume of cashless transactions.

• Overseas, China taxi revenues also improved in local terms, but this could not offset the fall in British taxi business – which is still mired in a depressed corporate market.

• Despite a 22% YoY jump in fuel and electricity costs to S$61.5mil (making up 9% of total expenses) largely on higher oil price, operating margin improved to 12.6% in 2QFY10 (versus 12.5% in 2QFY09 and 11.8% in 1QFY10). All other cost items were reasonably contained.

• On balance, we maintain our forecast for 4% YoY p.a. growth at 10.9 cents Singapore EPS in FY10F and 11.4 cents EPS in FY11F.

• PE stands at 14.4x FY10F and 13.8x FY11F. We maintain our BUY rating with 20% upside to fair value of S$1.89/share.