• No surprises in 3Q15
• Broad-based revenue growth ahead
• Maintain HOLD

3Q15 growth driven mainly by bus and taxi operations

ComfortDelGro’s (CDG) steady growth continued into 3Q15 as it recorded a 1.0% growth in revenue to S$1.05b, driven mainly by Bus (+3.4%), Rail (+7.3%) and Taxi (+2.4%) segments, but partially eroded by weaker AUD against SGD. Note that while rail revenue grew strongly, its operating profit decreased 20.1% YoY to S$5.4m on higher headcount with Downtown Line Phase 2 (DTL2) expected to commence revenue-generating services on from end-4Q15 onwards.

3Q15 operating expenses rose slightly by 0.6% YoY to S$918.8m mainly from higher staff (+3.1%) and depreciation (+9.7%) costs but offset by lower fuel and electricity costs (-8.1%) and lower materials and consumables (-14.5.%). Consequently, 3Q15 PATMI came in within expectations as it grew 5.4% YoY to S$85.2m which formed 27.9% of our FY15 forecast. While 9M15 PATMI rose 6.3% to S$233.7m and formed 76.6% of FY15 forecasts, based on historical trend, 4Q PATMI had traditionally been weaker than 3Q.

DTL2 to contribute from 27 Dec onwards

Looking ahead, stable broad-based revenue growth is expected to sustain as management guided for revenue growth in CDG’s bus, rail and taxi segments. Bus segment growth continues to be driven by: 1) mainly higher ridership in Singapore, 2) service enhancements in UK, and 3) contribution from Blue Mountains bus services in Australia to offset weaker AUD.

Also, the transition to the new bus government contracting model from 2H16 means Singapore bus revenue will be based on the contracted annual fee, which is subjected to neither ridership growth nor changes in fares. Rail revenue growth is likely to attributable to higher ridership as: 1) more new trains are added to the North-east Line (NEL), and 2) launching of revenue services for DTL2 on 27 Dec. For taxi, fleet expansion and renewal of taxi fleet in Singapore will continue to drive revenue growth on higher rental rates.

Net cash position; maintain HOLD

With an in-line set of 3Q15 results, and given its diversified revenue base as well as strong balance sheet (net cash position), we keep our forecasts unchanged. Maintain HOLD with the same FV of S$2.99.

Source: OCBC Research - 16 Nov 2015