• 1Q15 largely within expectations
• Stable growth outlook to sustain
• Keep forecasts unchanged; maintain HOLD

Decent start to FY15

As first quarter’s performance had historically been the weakest, ComfortDelGro’s (CDG) 1Q15 results were broadly in-line with our expectations as PATMI grew 6.8% YoY to S$67.6m, which formed 22.1% of our FY15 forecast. This was on the back of a 1.3% growth in revenue to S$963.5m, driven mainly by Bus (+2.2%), Rail (+8.1%) and Taxi (+5.2%) segments but eroded by weaker AUD and GBP.

1Q15 operating expenses grew 1.3% YoY to S$860.4m mainly due to higher staff costs (+5.5%) and higher depreciation and amortisation (+8.1%) but offset by lower fuel and electricity costs (-10.6%) and lower insurance premiums and accident claims (-12.5%). Favourable foreign currency translation of S$7.9m also helped mitigate the increase in operating expenses. For 1Q15, revenue from overseas decreased 1.3ppt YoY to form 38.3% of group’s total revenue while overseas operating profit declined 5.5ppt to form 45.3% of group’s total operating profit.

Stability remains its key characteristic

Going forward, we expect stable growth to continue as management guided for revenue from Singapore and UK bus, rail and Singapore taxi segments to increase. Bus segment growth is still driven by: 1) higher ridership and fares in Singapore, and 2) new routes that started in 1Q15 as well as contract enhancements in the UK. As more trains are added to the North-east Line in FY15, ridership is expected to increase, together with higher fares from the fare adjustment.

The Singapore taxi business is expected to grow with more cashless transactions and continuation of fleet renewal in 2015. Over the longer-term, bus restructuring in Singapore will turn core operations profitable from 2H16 onwards. With DTL 2 (12 stations) expected to start from 1Q16 and DTL 3 (16 stations) from 2017 onwards, we can expect further growth in revenue though offset by initial start-up costs.

Forecasts unchanged; maintain HOLD

We continue to like CDG for its stability and diversified revenue base. Prudent capital management coupled with steady growth prospects is attractive to us. With in-line 1Q15 results, we keep our forecasts unchanged. Maintain HOLD with an unchanged FV of S$3.07.

Source: OCBC Research - 14 May 2015