Comfort Delgro: Kim Eng maintains Buy with $2.08 TP based on 17x FY11E PE. Note that with the purchase of Swan Taxis in Perth, ComfortDelgro is now reported to be among eight companies vying to operate 850 metro buses in Adelaide…..
Note that overseas acquisitions, particularly in Australia are generally more lucrative than its domestic bus operations and believe aggressive expansion of operations abroad is just the ticket needed for investors to re-rate the stock…..
Comfort’s interest stems from the favourable operating model that the state govt afford operators. Essentially, the cost recovery model allows for a fixed amount to be given to cover depreciation and other fixed overheads, while a variable amount is given to cover mileage and passengers carried. Labour and fuel costs are also pegged to a price index to offset inflation…..
We note that grp continues to look attractive at less than 13x FY11E PE vs SMRT’s 19x FY Mar12 earnings.