ComfortDelGro

ComfortDelGro: (S$2.99) Stronger 3Q15 results belies potential headwinds
The public transport operator turned in 3Q15 net profit of $85.2m (+5.4% y/y) on revenue of $1.04b (+1%). That brought 9M15 earnings to $233.7m (+6.3%) attaining 77% of the street’s consensus estimate.

Topline performance was driven by growth across most segments, particularly from bus (+3.4%), taxi (+2.4%), and rail (+7.3%), pared by its automotive engineering business (-15.1%).

Key segmental highlights:
Bus - Turnover rose 3.4% to $545.5m (51% of total revenue), partially eroded by an unfavourable FX translation of $7.9m from the weaker AUD offset by a stronger GBP. Revenue from Singapore operations jumped 5.3% to $214.2m. Contributions from overseas operations accounted for 60.8% of bus revenue (3Q14: 61.5%). Operating profit rose 19.6% to $54.3m, possibly on its UK and Australian expansion, which led to better margin of 10% (+1.3ppt).

Taxi - Revenue grew 2.4% to $$335.2m on favourable FX translation of $4.1m from the stronger RMB and GBP, with Singapore taxi business notching a 2.8% increase to $253.9m . Overseas taxis contributed 24.3% of total taxi revenue (3Q14: 24.5%). Turnover was up 6% to $44.1m in China but slipped in UK (-2.2%) and Australia (-22%). Operating profit rose 8.4% to $46.6m on stronger margin of 13.9% (0.8ppt).

Rail - Revenue leapt 7.3% to $54.7m on higher average daily ridership for NEL (+4.2%), DTL (+15.2%), Punggol/Sengkang LRT (+15.5%) and average fare. However, operating profit slumped 63.6% to $0.8m on ramp-up costs from DTL.

Going forward, management expects revenue from its bus, rail, and taxi businesses to improve but automotive engineering services, and inspection and testing services businesses will continue to be a drag on top line growth.

However, with public transport fares set to be cut by 1.9% from 27 Dec onwards, its local bus and rail operations could see more muted growth in 1Q16. The Public Transport Council is slated to review fares in Apr ‘16.

In addition, the group could see its market leading position in the domestic taxi industry tested with apps such as Uber and GrabTaxi.

The group is currently in a net cash position of $3.7m, giving it ample headroom to take on more debt and expand its operations.

ComfortDelGro is currently trading at 21x forward P/E with the street largely divided with 7 Buy, 4 Hold, and 2 Sell ratings on the counter and a consensus TP of $3.29.

Latest broker ratings:
CIMB downgrades to Hold, cuts TP to $3.17 from $3.39
UOB Kay Hian maintains Buy with TP of $3.30
Daiwa maintains Buy and raises TP to $3.55 from $3.46
Deutsche maintains Buy with TP of $3.88