Comfortdelgro - OUTPERFORM (CIMB)

Previous day closing price: $1.32
Recommendation: OUTPERFORM (maintained)
Target price: $1.84 (reduced from $1.97)

4Q08 net profit of S$44.8m (-6.3% yoy) was marginally above our estimate but ahead of consensus. FY08 net profit of S$200m was 2.3% and 6.4% higher than our forecast and consensus respectively. This was mainly due to lower-than-expected operating expenses in 4Q08. FY08 pretax margins slipped to 9.7% from 11.2% in FY07, but were steady yoy at 9.6% in 4Q08. Revenue fell 1.7% yoy to S$760m, led by forex translation of A$ and ₤. Overseas operations contributed 43% of revenue in FY08. A final tax-exempt dividend of S$0.024 was declared.

Bus revenue dipped 0.3% yoy to S$1,533m in FY08, due to the translation impact of a weak A$ and ₤ against S$. However, strong growth came from rail (+22.1% yoy), diesel sales (+31.9% yoy), automotive engineering (+40.3%) and vehicle inspection (+16.5%). Excluding the negative forex translation impact of S$140m, revenue would have risen S$244m (+8.2% yoy). A positive translation of S$133m from operating expenses mitigated this. The net forex translation impact for the group was a manageable loss of S$7.1m.

We adjust our FY09-10 forecasts by +4.2% to -5.5% to reflect retreating energy prices, higher ridership and forex translation. We also introduce FY11 forecasts. Due to our earnings changes, our DCF-derived target price falls to S$1.84 from S$1.97 on an unchanged WACC of 11%. Management guided for a minimum 50% dividend payout and no special dividends for FY09, translating to a prospective CY09 dividend yield of 4.4%. Maintain Outperform on the back of its defensive earnings.