ComfortDelgro (KE)

Event

ComfortDelgro reported a set of 3Q11 results that beat our expectation and market consensus. Net profit rose by 12.5% YoY to $69.1m on broad-based revenue growth of 6.5%. Notably, the group managed to keep its energy costs under control (-0.7% QoQ) due to its prudent hedging policy. We roll forward our valuation basis to 15x FY12F PER, which thus raises our target price to $1.65 from $1.58. Reiterate BUY.

Our View

ComfortDelgro’s overseas transport businesses provided the main positive surprise. Australia, in particular, benefited from the full contribution of Swan Taxis that was acquired in October last year, as well as efficiency gains from organic expansion of bus routes in New South Wales and Victoria, The strong A$ also mitigated the impact of the weak pound and renminbi. We note that the UK (19.8%), Australia (13.8%) and China (8.1%) businesses now collectively accounted for 42% of its overall revenue.

Despite a sequential improvement, the Singapore bus business continued to be weighed down by higher fuel costs. A slight operating loss of $42,000 (excluding advertising and rental) was recorded, compared to a profit of $3.0m a year ago. Meanwhile, the taxi business achieved 6% growth due to higher rental income from a larger operating fleet and more cashless transactions. We have, however, assumed slower fleet growth going forward in view of the current high Certificate of Entitlement prices.

We reckon that 4Q11 will remain relatively resilient with 40% of the group’s diesel requirements in Singapore and the UK hedged for the rest of this year (20% for FY12). The approved 1% fare hike that took effect last month should also help boost its rail and bus revenue.

Action & Recommendation

We tweak our FY11-13 earnings forecasts marginally to reflect the better-than-expected results. Given 17.5% upside potential, we maintain our BUY recommendation with a higher target price of $1.65.