RHB Research is keeping its “buy” call on ComfortDelgro but lowering its target price to $3.25 to $3.40 after lowering its earnings by 4–4.8% for FY2016 and FY2017.
The earnings adjustment takes into account the lower earnings from the UK taxi business, and a translation loss for its UK businesses arising from the weaker GBP.
ComfortDelgro’s UK businesses represents 25% of total revenue and 21% of its operating profit. Out from that, 90% of the UK business’ revenue and 97% of operating profit comes from its bus operations, with the rest coming from its taxi business.
Following the GBP’s 6.8% decline against the SGD in the aftermath of the Brexit vote, RHB’s Shekhar Jaiswal lowered his FY2016 to FY2017 GBP to SGD exchange rate estimate by 10 to 13%, which translated to a 2% to 3% decrease in earnings.
“We do not expect the UK to enter a recession, [but] we do expect some weakness in its economy over the next few years, which may translate into lower profits for ComfortDelgro’s UK taxi business,” says Jaiswal.
The lowered earnings estimates also took into account the potential increase in taxi operator’s operating licence fee from 0.1% to 0.3% of gross taxi revenue next year.
However, he does not expect any impact on the group’s dividend pay out. “CD’s Singapore business generates sufficient cash flow to sustain its dividend payments,” says Jaiswal. “In addition, cash inflows from the sale of its Singapore bus assets to the Government should allow ComfortDelgro to gradually increase dividend payments over the forecast period.”
At 1.04pm, ComfortDelgro shares are trading flat at $2.68.
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The earnings adjustment takes into account the lower earnings from the UK taxi business, and a translation loss for its UK businesses arising from the weaker GBP.
ComfortDelgro’s UK businesses represents 25% of total revenue and 21% of its operating profit. Out from that, 90% of the UK business’ revenue and 97% of operating profit comes from its bus operations, with the rest coming from its taxi business.
Following the GBP’s 6.8% decline against the SGD in the aftermath of the Brexit vote, RHB’s Shekhar Jaiswal lowered his FY2016 to FY2017 GBP to SGD exchange rate estimate by 10 to 13%, which translated to a 2% to 3% decrease in earnings.
“We do not expect the UK to enter a recession, [but] we do expect some weakness in its economy over the next few years, which may translate into lower profits for ComfortDelgro’s UK taxi business,” says Jaiswal.
The lowered earnings estimates also took into account the potential increase in taxi operator’s operating licence fee from 0.1% to 0.3% of gross taxi revenue next year.
However, he does not expect any impact on the group’s dividend pay out. “CD’s Singapore business generates sufficient cash flow to sustain its dividend payments,” says Jaiswal. “In addition, cash inflows from the sale of its Singapore bus assets to the Government should allow ComfortDelgro to gradually increase dividend payments over the forecast period.”
At 1.04pm, ComfortDelgro shares are trading flat at $2.68.
Click Here To Register For Free Trial Services OR Give A Missed Call : +6531581402 Follow Us On Twitter : www.twitter.com/epicresearchsg Like Us On Facebook : www.facebook.com/EpicResearchSingapore Need Any Assistance Feel Free To Mail Us at : info@epicresearch.sg
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