• FY17 results within expectations
• Expects earnings to bottom-out in FY18
• Total dividend of 10.4 S-cents in FY17

Core FY17 PATMI Formed 100% of Our FY17 Forecast

ComfortDelGro’s (CDG) FY17 revenue fell 2.2% to S$3970.9m, mainly attributable to its weaker underlying business (-S$54.1m) due to decreases in taxi (-9.9%) segment on lower rental income in Singapore, and automotive engineering services (-14.3%) on lower taxi fleet size but partially offset by Public Transport Services (+3.6%) segment. FY17 operating expenses fell by only 1.0% to S$3561.7m, mainly due to the favourable foreign currency translation from the weaker GBP against SGD. Consequently, FY17 PATMI decreased 4.9% to S$301.5m.

Stripping out the special dividend CDG received in 1Q17 from Cabcharge Australia, FY17 core PATMI came in within our expectations even as it fell 8.4% to S$230.9m, and formed 100.4% of our FY17 forecast. CDG has also proposed a final dividend of 6.05 S-cents for FY17 (unchanged from FY16’s final dividend), bringing total full-year dividends to 10.4 S cents.

Stabilizing Taxi Business the Key Focus for FY18

According to management, while taxi fleet size has been shrinking over FY17, idle rate has remained in the low single-digit level. Looking into FY18, management guided that they will not grow its taxi fleet size but may look to replace taxis that are slated to be scrapped during the year, if there is demand, and certainly not at the expense of higher idle rate.

In our view, while the taxi business remains highly competitive, we expect the rate of decline in CDG’s taxi business to slow down going forward, but possibly at the expense of lower operating margin in order to incentivise existing hirers to continue renting the taxis. In addition, we believe the gradual and steady growth expected from bus business will help offset the weakness from the taxi business.

Uber Alliance to Help Stabilize Taxi Business

We believe the alliance with Uber, if approved, will help stabilize CDG’s earnings outlook, through stabilization of taxi idle rate as well as open up potential opportunities from enlarged fleet to sell petrol and provide vehicle maintenance services. All considered, we rollforward our valuations and increase our FV from S$2.12 to S$2.25. Therefore, based on 13 Feb 18 closing price of S$2.01, we deem CDG attractive, supported by FY18F dividend yield of ~5.2%.

Source: OCBC Research - 14 Feb 2018