3Q12 results within expectations. ComfortDelGro's (CD) 3Q12 PATMI came in within our expectations at S$73m (+12% QoQ, +5% YoY) on the back of higher revenue of S$901m (+2% QoQ; +3% YoY) with operating margins flat YoY at 13.0% (2Q12 EBIT margin: 12.0%). 3Q12 PATMI made up 28.3% of our full year estimates and 29.5% of consensus'. We continue to like CD for its overseas business capabilities such as its expansion into Guangzhou's taxi market which was announced last week. Maintain BUY with TP of S$1.85 based on DCF (WACC:9.3%; TGR: 2.0%).

Broad based growth cushioned weaker Singapore rail and bus segments. CD's 3Q12 EBIT growth of 3% YoY to S$117m was largely supported by its
Singapore taxi and Automotive Engineering Services segment in which EBIT grew 15% YoY to S$27m and 28% YoY to S$13m respectively. Singapore rail and bus segments remained weak with higher ridership for bus and rail not being able to offset against lower average fares and rising costs (in particular staff costs, depreciation and repair and maintenance). 3Q12 SBS Transit bus losses increased many folds to S$1.8m while rail EBIT fell 93% YoY to S$0.4m.

Overseas expansion the way forward. Following the acquisition of Deanes Transit Group in Australia announced in early Aug 12, CD's latest venture into overseas markets involves a JV with Guangzhou Transportation Group for the provision of taxi services. CD currently operates c.11,000 taxis in China. With its China taxi segment commanding EBIT margins of 26% (versus Group margins of 11.4% and Singapore margins of 10.4%) we are positive that this expansion will in time lead to earnings accretion for the Group.

Valuations attractive. At FY12 P/E of 13.2x, CD remains more attractive than SMRT's 19.1x FY13 P/E (FYE Mar). CD's widespread overseas network allows it better overseas growth prospects which we view as a strong advantage.

Rail hit by cost pressures; ridership growth stays decent. Average daily NEL and LRT ridership rose 6.8% to 530k for 3Q12 versus 496k in 3Q11. However, 3Q12 rail operating profit fell 93% YoY to S$0.4m due to higher staff costs (largely from DTL start up), higher repairs and maintenance costs, and higher other operating expenses.

Bus segment EBIT was up 1.3% YoY to S$45.5m mainly due to higher contribution from UK/Ireland and Australia partially offset by a decline in China and Singapore bus operations. Singapore operations remained weak as its contribution (inclusive of advertisement and rental income) fell 7% to S$6.7m.

Taxi segment EBIT rose 8.2% YoY to S$39.5m due to higher profits from Singapore (from a larger operating fleet, higher rentals from replacement taxis and higher cashless transaction volumes) and Australia, partially offset by lower contribution from UK/Ireland (due to lower corporate and Taxicard bookings), China (due to increases in statutory social security contribution for drivers and higher losses on disposal of taxis where new regulations state that taxis have to be repainted before disposal) and Vietnam.

Trading at attractive 13.2x FY12 P/E. We continue to favour CD for its overseas operations and attractive valuation. At FY12 P/E of 13.2x, CD remains more attractive than SMRT's 19.1x FY13 P/E (FYE Mar). Additionally, CD has better overseas growth prospects with its widespread overseas network which we view as a strong advantage. We like CD for its overseas operations EBIT margins averaging 13% in 2011 versus 10% for its Singapore operations, and are also positive on its overseas operations possibly accounting for 70% of revenue over the next 3-5 years. We also think that concerns on forex issues are undue given that its overall impact for 2011 was only marginal (+S$4.2m) with negative forex on revenue (- S$16m) more than offset by positive forex impact on expenses (+S$20.2m).

   

      

          

Source: OSK