Comfort Delgro

Comfort Delgro: Maybank-KE is downgrading the transport operator to contrarian sell from Hold, and cutting its TP to $2.70 from $2.90. Trading at a lofty 23x P/E and 2.8% yield, the house believes that Comfort Delgro (CDG) has priced in upside from the impending transition at its Singapore bus
business.

The group is also trading at a hefty 60% premium to the market (vs 3% premium since end-2008). CDG’s stub value (stripping out SBST and VICOM) has also surged despite no material positives for
the rest of its business.


Maybank-KE believes that the market is complacent on three fronts:
1) Threats to the taxi business (31% of sales, 34% of EBIT) – The growing presence of Uber pose a structural threat to its taxi business. Regulators in Singapore appear to be adopting a light touch and the house expects taxi rentals to be under pressure.

2) Sale of bus assets to the government is logical, but it is not a given - Market expects a potential windfall from the sale of its bus assets but this is not a done deal. While it is logical for the government to buy its bus assets, it has never announced a decision on this. A leaseback is still possible. The government will be cautious not to be seen as giving private entities a large hand-out, especially with the S’pore General Elections looming.

3) Impact of weakening AUD (10% of sales, 16% of EBIT) - The AUD has already depreciated by 7% on average from last year (SGD/AUD: YTD15 - 1.06 vs 2014 average- 1.14) and Maybank’s FX Research team expects this weakness to be sustained with 1Q16 forecast of 1.03.