ComfortDelGro

ComfortDelGro: Following the announcement on 29 Dec where SBS Transit, a 75%-owned subsidiary of ComfortDelGro, will sell 50 new buses to LTA and the novation of procurement contracts for purchase of new buses to be delivered in FY16 and FY17, OCBC believes this gives a clearer signal that LTA may be willing to pay for the rest of ComfortDelGro’s buses at net book value of $800m.

As part of the plan to shift to the new bus government contracting model by 2H16, house believes there are two likely ways the divestment of ComfortDelGro’s buses to LTA could be structured – either LTA pays a lump sum in cash to ComfortDelGro for its assets, or structure the transaction as a finance lease which means progressive payments by LTA.

Factoring in these assumptions, OCBC's TP increases from $2.99 to $3.40. The house upgrades the counter from Hold to Buy rating.