Positive But How Much Has Been Priced In? HOLD

• We attempt to capture the impact of Singapore’s coming rail-formula reforms as announced by the Transport Minister recently and raise our FY20/21E revenue for COMFORTDELGRO (SGX:C52) by 9%/14% and core profits by 8%/13%. Our DCF-based (WACC 9.0%, LTG 1%) Target Price consequently climbs by 12% to SGD2.76. We maintain our HOLD call.
• The final form and quantum of fare hikes and/or grants along with the direction of taxi competition and overseas acquisitions are upside and downside risks to our outlook.

Rail Cost Recovery Improvements Under Study

• Singapore’s Transport and Finance Ministries are working on allocating a “temporary enhanced maintenance grant” to rail operators to cover their operating costs. These were previously not adequately covered by fare revisions. Rail-fare formulas as determined by the Public Transport Council will also be reviewed to “to reflect the increased operating cost to support the intensified maintenance”.

Early Days But Price Reflects Positive Development

• Details are available but to factor in short-and long on and our DCF, we raise our transport service assumptions. We believe the will view the as rather than exceptional.
• Our FY20E core-profit are now higher than FactSet. Even on our the stock near or above 1SD 3-year and 10-year suggesting have been in.

Sensitivity Analysis: Public Transport Matters Most

• Without more colour on the grants or fare-formula revisions, potential upside or downside to our estimates remains.
• Based on our sensitivity analysis, public transport services, locally and overseas, should become even more important than before for its value creation. Every 1% improvement in public transport revenues raises our Target Price by a similar 1%. See Figure5 in attached PDF report for sensitivity analysis details.

Source: Maybank Kim Eng Research - 9 Jul 2019