(BUY, S$1.26, TP S$1.81)
2Q11 results in line. ComfortDelGro’s (CD) 2Q11 PATMI came in within expectation at S$59.9m (+19.6% QoQ; +2.9% YoY) on the back of higher revenue of S$843.0m (+5.0% QoQ; +6.8% YoY) and higher operating margin of 12.2% (1Q11 EBIT margin: 10.8%; 2Q10 EBIT margin: 12.6%). Key contributor to CD’s earnings growth was taxi segment which saw a 13.8% YoY rise (+21.7% QoQ) in EBIT to S$36.4m, partially offset by lower EBIT from bus segment at S$36.6m (-3.7% YoY; +28.0% QoQ). Maintain BUY with TP of S$1.81 based on DCF (WACC: 9.0%; terminal growth rate: 1.3%).
Strong taxi performance. CD’s taxi segment posted strong growth in EBIT contribution mainly due to 1) higher rental income from enlarged fleet in Singapore, 2) higher commission from cashless transactions, and 3) positive contribution from Swan Taxis in Australia beginning 4Q10. In addition, EBIT margin of CD’s taxi segment was higher at 14.2% (+2.2ppt QoQ; +0.8ppt YoY).
Bus division dragged results lower. Bus segment was a drag on CD’s earnings due to drop in
contribution from Singapore bus segment which posted EBIT of S$4.8m, inclusive of advertisement income (-36.0% QoQ; -52.5% YoY). Excluding the advertisement income, Singapore bus segment posted operating loss of S$1.5m in 2Q11 mainly due to higher fuel and staff costs. Currently, CD has hedged ~40% of its diesel requirement. On the other hand, CD has not hedged its electricity requirement due to unfavourable spot rate.
No impact from London riot. The recent riots in the UK resulted in six out of ~1,200 buses slightly damaged in London. Provided that the current situation in London is contained, we do not expect CD’s bus operations in London to be affected materially.
Top pick remains CD. At implied P/E of 13x FY11 P/E, CD remains cheaper than SMRT’s 18x FY12 P/E. In addition, CD has greater overseas growth opportunity due to its extensive overseas network as well as better cost control vis-à-vis SMRT, evidenced from the latest results.
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