Excerpts from analysts' report
UOB Kay Hian analysts: Andrew Chow, CFA & Thai Wei Ying
|Share Price Underperformance Not Warranted|
BUY CD for its resilient outlook, strong cash flow and dividends. We have a DCF-based target price of S$3.16 and the recent underperformance is a buying opportunity. We analysed the potential implication of the Brexit on its UK operations. Given that much of CD’s earnings stem from the more resilient bus segment, we believe downside impact is limited, notwithstanding potential translation losses.
• Uber grabbing drivers? While we understand that taxi hire-out rate was maintained at close to 100%, the waiting list for taxi rental has declined.
Nevertheless, we note since the enforcement of the Taxi Availability Standard in 2013, CD has been prudent in its taxi fleet expansion, with yoy taxi fleet growth in 2014 and 2015 at about 1.5% and 0.8% respectively, below the 2% allocation. In addition, we opined that CD and Uber caters to different driver profiles.
While CD attracts full-time drivers seeking job stability, Uber typically draw drivers who prefer flexibility in working hours or younger drivers looking for part-time pursuits. This would be an issue to watch out for as CD may have difficulty attracting younger taxi drivers.
As an indication, fewer people are applying for vocational license. According to Land Transport Authority (LTA), the number of applicants for taxidriver vocational license fell from 9,094 in 2013 to 7,968 last year.
|♦ Special dividend of 5.6-6.2 cts?|
|"Pending the final terms of the bus financing framework, we foresee a potential for a special dividend of 5.6-6.2 S cents/share. This assumes that SBS disposes its bus assets in Singapore at book value and pays out 50% of its net cash after the repayment of debt. We see the recent underperformance of its share price as a buying opportunity."
-- Andrew Chow, CFA (photo) &
Thai Wei Ying
• Earnings maintained; steady 3-year EPS CAGR of 10.4%. We make no change to our earnings estimate. The group continues to deliver and we forecast CD to register a healthy 3-year net profit CAGR of 10.4% over 2016-18.
• Key risks include weaker ridership or a lower-than-expected average fare increase in its bus and rail divisions. Other risks would come from third-party taxi apps having a negative impact on taxi revenue and difficulties in attracting younger taxi drivers, as well as stronger-than-expected impact from the potential Brexit on CD’s UK business.
• Maintain BUY and DCF-based target price of S$3.16. Against an uncertain macro outlook, we find CD resilient earnings and strong cash flows as attractive defensive shields.
SHARE PRICE CATALYST
• We see potential catalysts from: a) more accretive overseas acquisitions, b) favourable terms for the bus financing framework, and c) continued rise in dividend payouts from 2016 onwards.
Full report here.