• 1.2% YoY rise in 2Q19 net profit
• Higher interim dividend
• Can undertake more acquisitions

Slight Growth in Net Profit in 2Q

ComfortDelgro (CD) saw a 4.2% YoY rise in revenue and a 1.2% increase in net profit to S$75.9m in 2Q19, bringing 1H19 net profit to S$146.3m which was a 3.5% increase YoY. Group operating costs grew 4.1% YoY in the quarter from additional headcount needed to support the growth in business as well as higher repair and maintenance costs (more for North-East line which is about 15 years old). Operating profit was 5.0% higher at S$115m (+S$5.5m), after taking into account the net negative impact from the foreign currency translation effect of S$2.1m from the weaker AUD, GBP and RMB.

Outlook for Various Segments

Looking ahead, the group expects revenue from the public transport services in Singapore to increase, but will continue to experience significant cost pressures from operating and maintenance costs. We note that the latter is an additional comment from management as compared to last quarter’s briefing.

As for the Australia bus business, revenue is expected to be higher with a full year contribution from the acquisitions made last year as well as the recent acquisition of B&E Blanch Pty Ltd in May this year. Taxi revenue is expected to decrease (amidst continuing keen competition), along with car rental & leasing. Revenue for the other segments should be quite stable.

Higher Dividend; Can Still Acquire

The group has declared an interim dividend of 4.5 S cents, which is 3.4% higher than the 4.35 S cents that was declared in 1H18. Its net gearing was 2.8% as at 30 Jun, and CD is in a position to undertake more acquisitions. However, the ability to find the right people to run the acquired businesses is also a factor during considerations.

According to a 12 Aug Bloomberg article, Deutsche Bahn, Germany’s state-owned rail operator, has attracted interest from more than 10 buyout firms and competitors for all or parts of its European transport unit Arriva, and CD is one of them. We fine-tune our estimates and our fair value estimate is revised higher to S$2.91.

Source: OCBC Research - 14 Aug 2019