• Expects solid end to FY14
• Growth drivers remain strong
• Reiterate BUY rating

FY14 performance likely to meet our expectations

Stability is ComfortDelGro’s (CDG) key strength thus far for FY14 and we think its ability to remain so is attractive. CDG’s results for all three quarters in FY14 came in within our expectations and we believe it is on track to meet our forecasted 9.0% YoY growth for FY14’s PATMI. Recall that revenue from Australia saw decline since 1Q14 on loss of bus routes in regions 1 and 3. However, we believe it is more or less stabilized as seen in 3Q14 from its operations in the newly acquired region 4 bus routes. In UK, revenue growth came mainly from the newly secured Metroline West operations. We also expect improvement from bus and rail operations in Singapore to continue on higher ridership and average fares for the rest of FY14. Overall, we are positive on CDG’s ability to meet our FY14 expectations.

2015 outlook remains bright for ComfortDelGro

CDG’s key growth drivers are its bus, rail and taxi segments and we believe they will remain strong going into 2015. Although Australia saw decline in FY14, we think revenue has stabilized and should see gradual growth in 2015. We expect revenue from UK bus operations to increase steadily from Metroline West growth. For bus and rail operations in Singapore, the potential catalyst could come from a fare increase in 2015. The Public Transport Council (PTC) has started the annual fare review exercise with a decision likely to be announced in 1Q15. The last fare increase of 3.2% was in Apr 2014, which is less than half the total fare cap of 6.6%. Hence, we expect the remaining 3.4% in this year’s fare review exercise and based on the new formula used for deciding fare adjustment, we estimate the increase is likely to be lower than 3.4% due to the recent oil prices’ slide. Taxi revenue in Singapore should also continue to see growth on higher rental income as a result of fleet renewal.

Reiterate BUY rating

We continue to like CDG for its diversified yet stable revenue streams from different geographical regions. With a healthy balance sheet, we expect stable and decent dividends (~55% payout) ahead. Hence, we reiterate our BUY rating on CDG with an unchanged DDM-derived fair value estimate of S$3.03.

Source: OCBC Research - 27 Nov 2014