• 1Q18 within expectations
• Diversifying to rely less on taxi business
• Guiding for better outlook ahead

1Q18 PATMI Formed 23% of Our FY18 Forecast

ComfortDelGro’s (CDG) 1Q18 revenue rose 1.0% YoY to S$878.8m, mainly attributable to favourable foreign currency (forex) translation (+S$5.2m), and stronger underlying business (+S$3.8m) due to increase in Public Transport Services (+9%) segment, but offset by weaker taxi (-15%) business and automotive engineering services (-14%) business.

However, 1Q18 operating costs rose 1.8% YoY to S$783.1m due to unfavourable forex translation, higher staff costs, higher energy costs and higher repairs and maintenance costs. Consequently, stripping out the special dividend CDG received in 1Q17 from Cabcharge Australia, CDG’s 1Q18 PATMI came in within our expectations as it fell 7.1% YoY to S$66.3m.

On An Acquisition Spree

CDG has recently been active in making M&A transactions. As at 10 May 18, it has since the beginning of the year, announced eight acquisitions totalling ~S$137m, which we estimate will make positive contributions to its bottom-line.

The focus of these acquisitions is mainly to grow CDG’s bus businesses in Singapore, Australia and UK. We believe this will positively contribute towards reducing CDG’s reliance on the disrupted taxi business in Singapore.

Given its positive FCF and strong net cash position, we expect CDG to continue engaging in M&A activities while sustaining its dividend payout ahead.

Separately, CDG also announced on 7 May 18 that it has placed an order for 200 new hybrid Hyndai Ioniqs, and upon delivery in Jun 18, will be immediately leased out to the growing line of would-hirers. This order of new taxis, the first time in almost 1.5 years, does provide a positive indication of a recovery in demand for taxis post Grab-Uber merger.

Outlook Guidance Turned More Positive

On abovementioned reasons, we increase our FY18F-FY22F EPS forecasts by 2%-4%, raise terminal growth assumption from 0% to 0.5%, and increase our FV to S$2.50 (prev: S$2.25).

In addition, we note that management guidance for revenue outlook for taxi, automotive engineering services and UK public transport services turned more positive from decrease in revenue to maintain revenue

Source: OCBC Research - 14 May 2018