by ishak » Thu Aug 14, 2008 3:51 pm
ComfortDelgro: Fall in 2Q08 Earnings Due to Fuel Cost Surge (BUY\S$1.57\Target S$1.85)
CD recorded 2Q08 net profit of S$56.8m, down 2.9% YoY. Stripping out the 2Q08 one-time S$26.5m gain from restructuring, core net profit of S$30.3m would be down 48% YoY. 1H08 net profit of S$107m represents 53% of our reduced 2008 forecast. Turnover was up 5.7% YoY to S$785.2m.
Steady growth in global bus turnover. Global bus turnover was up 3.1% YoY to S$393.5m. However, bus operating profit of S$18.8m was down 35% YoY.
• Singapore bus turnover of S$141.3m was up 6.2% YoY, driven by ridership growth of 6.0% YoY to 2,286k rides per day. However, the Singapore bus business suffered a loss of S$3.1m versus 2Q07’s gain of S$9.6m, mainly due to the significant rise in fuel cost.
• The UK Metroline bus business recorded a 6.6% YoY turnover contraction to S$145.9m due to the weaker Sterling Pound. However, in Sterling Pound terms, turnover was up 5.3% YoY due to contract price adjustments, more mileages traveled and better quality incentive bonus.
• China bus turnover grew 6.3% YoY to S$13.4m. But a S$0.1m operating loss was recorded, vs S$0.2m profit in 2Q07 as government subsidies for fuel and concessionary travel would only be received in 2H08.
We have factored in a high 48% rise in 2008 energy and fuel costs. WTI crude oil price has risen from an average of US$72.4/bbl in 2007 to US$111.1/bbl in 1H08, or an increase of 53%. We have assumed 2008 CD energy and fuel costs of S$320m, which represents a 48% YoY increase.
Weaker 2008 earnings, but primarily due to high fuel costs. We cut our 2008 net profit forecast by 6.6% to S$203.8m, primarily due to the weaker Sterling Pound. Excluding the S$26.5m one-time restructuring gain, core net profit would be S$177.3m, or a 20% YoY decline. As the weakness is primarily due to high fuel costs, a fall in WTI price would bring earnings back up strongly.
Target price of S$1.85, derived from sum-of-the-parts valuation. There is therefore good
upside from current price level. In addition, based on a 85% payout ratio, CD offers an
attractive 2009 dividend yield of 5.9% (CD declared 2008 interim dividend of 2.6S¢/share).
Maintain BUY.
You have to learn the rules of the game. And then you have to play better than anyone else.
- Albert Einstein