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Analysis of ComfortDelgro - Update 2


Based on the 3rd Quarter FY17 results, net profit decreased by ~ 8% Q-o-Q to 3.7cents. 

Including the 0.04 special dividends of CabCharge Australia, 9MFY17 EPS is now 11.2cents. So if we estimate EPS of 3cents for 4QFY17, FY17 EPS will be 14.2 cents. This is just slightly lower than FY16 EPS of 14.72cents. Give 4QFY16 EPS of 3.3cents, if we assume another 8% loss, we will get about 3 cents for 4QFY17. But the final number may be potentially slightly higher cos of the new Downtown Line 3 that started operations in October. So we have about 2 months of income there. 

At 14.2 cents, at PE of 13x (undervalue based on historical PE range), price should be about $1.846. 

If all things remain, which means the one or more of the followings:
  • Grab stagnated at pulling market share,
  • higher revenue from bus and trains, and
  • no exceptional gains, 
we could expect future EPS to be about 0.9*14.72= 13.25 to 14.2-04=13.8. 

Taking the lower conservative value, we take EPS at 13.25. at 13x PE, $1.72 will be considered undervalued. 15x is about fair value at $1.99. 

Given that they are spending about 60% of their cash reserve to buy LCR, I actually hope they cut dividends a little more to restore that cash reserve for rainy days. 

How I see things.. Grab and Uber will be software / application focused. Comfort, taxi companies will be fleet management. Revenue sharing between these two types of companies will be necessary for both to survive. Ultimately, there will be price reversion for consumers to pay whatever is the fair price for transportation. 

If CDG can successfully turn around LCR, it may not be a bad thing. Although, there is risk that Uber may give up SEA completely to focus on USA. And this while be bad for CDG if Grab and SMRT alliance strengthen in the meantime. In the ideal world, if only CDG had linked up with Grab, but in that scenario, Grab may play the upper hand and force more revenue share from CDG.  

Anyway, given these potential risk, I believe getting in at $1.85 will provide a higher margin of safety (compared to $1.95) and I can buy more if it does fall to $1.72. 

From the TA point of view, there seems to be some divergence between price and RSI at $1.91. So potentially there could be a short term rebound to $2.10-$2.20 perhaps. Thereafter, there might still be some room to fall for the sudden last plunge or the nice curve bottom. 

So this shall be a test of my patience, to wait for $1.85. If I miss it, I will just need to look for a better and more compelling investment opportunity. 

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