ComfortDelGro off to a good start

1Q14 results within expectations
ComfortDelGro (CDG) started FY14 on a bright note, registering a 9.2% YoY increase in its 1Q14 revenue to S$950.8m, while PATMI rose 9.7% to S$63.3m. This was within ours and the street’s expectations, with topline and bottomline forming 24.0% and 22.5% of our full-year forecasts, respectively. Broad-based revenue growth was achieved across most operating segments, with the exception of its Automotive Engineering Services and Car Rental & Leasing divisions. Despite cost pressures from higher staff expenses (+13.0% YoY) and fuel and electricity costs (+21.7% YoY), coupled with a net negative FX impact of S$0.5m on its profit before tax, CDG managed to keep its margins stable. Operating and net margin for 1Q14 came in at 10.7% and 6.7%, as compared to 11.0% and 6.6% in 1Q13, respectively.

Local conditions remain challenging
CDG’s Singapore operations remain challenging as expected, with its core Bus and Rail businesses running into operating losses of S$4.7m and S$1.0m (excluding rental and advertising income), respectively. The latter was impacted by start-up losses amounting to
S$6.8m at DTL1. Average daily ridership has increased from 54k in 1Q14 to ~57k in Apr-May, but still short of LTA’s steady state ridership target of 75k. On the other hand, CDG’s overseas operations continued its robust growth, conjuring up a 13.2% and 10.0% YoY growth in revenue and operating profit to S$376.5m and S$51.6m, respectively.

Maintain BUY
Besides CDG’s Australia bus business which is expected to register a decline in revenue, management guided that its remaining business segments are expected to either maintain or increase their revenue ahead. Management also refused to divulge details on probable upcoming policy changes by the Singapore government, but hinted that more details on the new bus operating model framework may be announced during the next Parliamentary session to be held on 16 May. Any measures which would enhance the sustainability of the transport sector would be a major catalyst to both CDG and SMRT. We retain our forecasts, BUY rating and fair value estimate of S$2.30 on CDG.