ComfortDelGro Corporation Ltd Latent potential with overseas venture Market Sector Reuters Bloomberg POEMS. Buy (Maintained)

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1 ComfortDelGro Corporation Ltd Latent potential with overseas venture Market Sector Reuters Bloomberg POEMS Singapore Stock Exchange Transport-Services CMDG.SI CD SP CFD.SG Buy (Maintained) Phillip Securities Research Pte Ltd 24 March 211 Closing Price S$1.51 Target Price S$2.1 (+33.4%) Price Last Price w k High (1/1/211) w k Low (5/25/21) 1.38 Shares Outstanding (mil) Market Cap (S$ mil) Avg. Daily Turnover (mil) 5.33 Free float (%) PE (X) PB (X) 1.75 Price performance % 1M 3M 6M Absolute -1.3% -1.9% -1.3% Relative -2.% 1.7%.7% CD SP STI (rebased) Mar-1 23-Jul-1 23-Nov-1 23-M ar-11 Major Shareholders % 1 Singapore Labour Foundation 12.1% 2 Silchester Intl Investors 9.% 3 Capital Research Global Investors 6.5% Source: Bloomberg Analyst Derrick Heng FAX derrickhengch@phillip.com.sg Web: MICA (P) 4/1/211 Ref No: SG211_18 Strong potential with CDG s venture overseas Limited exposure to energy price increase NEL should continue to perform well; stronger than expected overseas performance is the wild card We revised our PATMI estimates upwards for FY11E by 5.6% and introduce FY12/13E estimates Maintain Buy following a change of analyst with revised target price of S$2.1 INVESTMENT MERITS: Global diversification. We believe that CDG s efforts to grow its businesses beyond Singapore could lead to significant earnings growth in the future. It also reduces their dependency on the Singapore market, which has a limited scope for land transport growth. NEL likely to do well. CDG s rail system serves the populous areas in the North-East of Singapore. We expect continued population growth to increase ridership for their rail business. Limited exposure to energy price increase. Exposure to energy cost is a typical concern of investing into transportation businesses. However, we believe that CDG is less exposed to potential energy price increase than its peers due to their diversified businesses and varied business models. Licenses & Operating rights protect competitive position. We observed sustainable profitability at some of CDG s overseas subsidiaries, which we believe could be attributable to a protected competitive position. KEY CHALLENGES: Singapore Bus. We expect CDG s bus business to be affected by the growth of rail network in Singapore. Plans to extend Singapore s rail network to 27km by 22 is likely to result in significant cannibalization of ridership from bus operations. With a 75% market share, we foresee long term challenges for CDG s public bus operations in Singapore. CCL s full opening at the end of 211 will be the near term headwind for the company. M & A. CDG aims to derive 7% of its revenue from overseas in the long run. While we are supportive of its venture overseas, we believe that there are inherent challenges and risks in growing their businesses overseas. Key Risks. Regulatory; Forex; M & A. Valuation. The current market price values the stock at 14X T12M EPS, which is at the lower end of the stock s historical trading range. Due to our expectations of robust growth in the near future, we opine that the stock deserves an above average valuation. We used a blended valuation model of DCF (COE: 8.2%, terminal g: 1%) and P/E (17X FY11e PATMI) to arrive at our target price of S$2.1. With an upside of 33.4% to the last trading price, we maintain our Buy call on CDG with a revised target price. Conso' Profits EPS DPS BV ROE P/E Yield P/BV Ending SGD(mill) SGD SGD SGD (%) (X) (%) (X) 12/9A % % 2. 12/1A % % /11E % % /12E % % /13E % % 1.5

2 ComfortDelGro Corporation Ltd 24 March 211 MINIMAL IMPACT FROM ENERGY COST HIKE A typical concern of investing into transportation businesses lies with the potential impact of unexpected energy price hikes. We believe that the impact of energy price increase has minimal impact on ComfortDelGro (CDG). Electricity and fuel expenses comprise of only c.8.3% of total group operating expenses. Due to the varied business models employed, we believe that energy price increase would only have a significant impact on CDG s bus operations in China & Singapore. Singapore s bus & rail business accounts for c.57% of the Group energy expenses. The growth in rail ridership more than offsets the negative impact of electricity cost increases. As shown in the figure below, rising crude oil prices from FY4-FY8 contributed to the erosion of profit margins of SBS Transit s (SBST) bus operations, reaching a low of 1.5% in 28 when crude oil prices spiked to a record high. While CDG advised that they had hedged 2% of their FY11 fuel requirements at an attractive rate, we believe that the bus business in Singapore could slip into losses if crude oil prices sustains at above US$125/bbl as we expect average fares to be c.8% lower than in 28. Fig 1. Energy cost impact on profitability SBST energy exp. (S$'mn) Crude Oil, WTI (S$/bbl) SBST Bus EBIT margin (%) SBST Rail EBIT margin (%) Source: Company, PSR FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 2% 18% 16% 14% 12% 1% 8% 6% 4% 2% % GLOBAL DIVERSIFICATION WILL BEAR FRUITS IN THE FUTURE The company recognized the physical limitations of Singapore s land transport sector and had been growing its business overseas since merger. Currently, Singapore accounts for 57% of the Group s revenue as compared to 7% when CDG was first formed in 23. This trend of global diversification will continue as CDG aims to derive 7% of their revenue from overseas in the long term. On average, CDG spends c.s$6mn annually on investing into various subsidiaries and associates. Due to the stable nature of their business, CDG is able to generate sufficient cashflows to fund these acquisitions without stressing its balance sheet. Furthermore, this expansion is achieved while maintaining high dividend payout to shareholders of c.5-85%. Fig 2. Good interest coverage despite continuous acquisition (2) (18) (16) (14) (12) (1) (8) (6) (4) (2) Investments into sub & associates Interest cover (X) Source: PSR FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 LICENCES & OPERATING RIGHTS PROTECTS BUSINESS POSITION We believe that the licences for the rights to operate protect the business position of CDG s businesses. These rights and licences create high barriers of entry and in the case of Singapore s rail operations, CDG enjoy a monopoly status in its area of operations (CDG is licensed to operate the North East Line (NEL), Sengkang Light Rail Transit (SLRT) & Punggol Light Rail Transit (PLRT) lines till 233). While rail business currently contributes less than 7% of the Group s EBIT, we believe it is one of the most protected businesses with excellent growth prospects due to our expectations of ridership growth along the rail line

3 ComfortDelGro Corporation Ltd 24 March 211 The business model used by some of CDG s bus and taxi operations overseas also enable them to sustain very healthy profit margins. For example, the cost-plus business model for Australia and UK s bus operations allow them to enjoy sustainable profit margins with little exposure to energy price variations. We also noted that the high EBIT margins for the taxi business in China (c.3% for the past 3 years) could be due to their protected competitive position as well. LIMITED SYNERGIES ACROSS GEOGRAPHY, BUT ADVANTAGE WITH SCALE The various subsidiaries in different countries seem to be stand-alone business units with very little synergies in their operations. However, we acknowledge that there are advantages to operating on a large scale in similar types of business. For example, large scale operations give the company bigger bargaining power with suppliers for fleet replacements, which is a characteristic of the land transport business. While we expect limited synergies for CDG s units across different geographical locations, we believe that acquiring units at close proximity to their current operations have potential synergies through resource sharing. CAPITAL INTENSIVE BUSINESS While we noted that CDG is able to generate very healthy operating cashflows, the land transport business is inherently very capital intensive. The company spends c.s$5mn annually to replace their taxis and buses with majority of the CAPEX paid in cash and c.1% on hire purchase. The requirement to regularly invest into new vehicles limits the company s ability to pay out higher amount of dividends to shareholders. Fig 3. Cashflow 8 6 CFO CAPEX FCFF 4 2 (2) (4) (6) Source: PSR FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 STRENGTH IN SGD COULD HURT PROFITS ON CONSOLIDATION CDG has exposure to various currencies. As a Group, CDG has the most exposure to CNY, AUD and GBP. Our analysis showed that the decline in GBP over the past 3 years had a significant impact on the business of CDG. If the GBP had maintained its strength at the average exchange rate of 27, ceteris paribus, sales and EBIT contribution could have been S$36.8mn and S$22.4mn higher in FY1. Fig 4. Revenue by Geography (FY1) Australia 11.8% Vietnam.2% Malaysia.1% China 8.6% Singapore 57.2% UK 22.2% Source: Company, PSR 3

4 ComfortDelGro Corporation Ltd 24 March 211 Fig 5. Pro-forma illustration for UK Bus & Taxi contributions UK Bus & Taxi contributions to CDG (S$) FY8 FY9 FY1 Actual GBP:SGD Sales EBIT Adjusted GBP:SGD, Sales EBIT Variance (S$) Sales EBIT Variance (%) 15.3% 32.6% 43.1% With subsidiaries in China, Australia and UK, CDG would benefit from a strengthening of the respective local currencies against the SGD. Market consensus estimates and forward curves point towards a gradual weakening in AUD against SGD, while the outlook for GBP & CNY remains relatively stable. In our forecasts, we had factored in market consensus estimates for forex movements against SGD (see summary table at end of report). FINANCIALS REVENUE FORECASTS (Note: the following section on forecasted fare changes was first published in our Update for SMRT Corporation, dated 3 March 211) Improved wage rates and rising energy cost should provide room for fare increase. The fares that transport operators are allowed to charge is capped at the formula below: Max. Fare Adjustment=.5* CPI +.5* WI -1.5% History of Fare change. Transport Fare reviews are typically conducted in July every year. However, due to the opening of Circle Line (CCL) stage 4 & 5, the review for the current year had been pushed back till the end of 211. We must emphasize that the Max Fare Adjustment formula may not be the actual fare change implemented by the transport operators as it is merely a cap on price increase. Based on data compiled by Mr Looi Teik Soon (Secretary of PTC) using press releases from the PTC, actual fare changes may not reflect values close to the fare cap. For example, as shown in the figure below, despite a 4.8% increase allowed under the fare cap formula in 29, transport fares were actually reduced by 4.6% to help Singaporeans cope with the economic slowdown. Fare adjustment for 211. According to the Economic Survey of Singapore published by Ministry of Trade & Industry (MTI), average monthly wages increased by 5.6% and CPI increased by 2.8% for 21. This works out to an allowable increase of 2.7% based on the formula above. With rising energy cost expected to adversely affect PTOs, we believe that the full 2.7% increase will be actualized in the review at the end of 211. Furthermore, the lowest 2% income group experienced the least inflationary pressure as a significant proportion of the CPI increase was due to rising energy cost and COE prices that affected the higher income group more than lower income group. Thus, the affordability criteria of our estimated increase in transport cost shouldn t be an issue. Fare adjustment for 212. For the next calendar year, inflationary pressure and rising energy cost could result in another round of fare increase. We believe that an assumption of 2.3% growth is reasonable, based on CPI and nominal wage growth of 3.5% and 4.% respectively. Long run fare increase. In the long run, Singapore aims to grow its real wages by 3% over the next decade. This works out to a CAGR of 2.7% real wage increase every year. By assuming an inflation target of 2.% on the long run, we estimate that the long term fare growth would be 1.8% for PTOs based on the current formula. 4

5 ComfortDelGro Corporation Ltd 24 March 211 Fig 6. Fare adjustments 8.% 6.% 4.% Fare Cap Actual Adjustment 2.%.% -2.% -4.% -6.% Source: PTC, PSR est. 213E 212E 211E EXPECT NEL TO DO VERY WELL CDG s rail system serves the very populous areas in the North-East of Singapore. According to data compiled from the Census of Population 21, the estates of Hougang, Serangoon, Punggol & Sengkang collectively accounts for 15% of Singapore s resident population. Furthermore, with more HDB residential developments in Punggol & Sengkang, we expect the population in these estates to increase significantly over the next few years. Fig 7. Rail ridership 25 2 Rail ridership (') CAGR= c.1.6% FY13E FY12E FY11E FY1 FY9 FY8 FY7 FY6 EXPECT UNDERPERFORMANCE FOR SG BUS UPON CCL FULL OPENING While we expect that government effort to promote the use of public transport will benefit public transport operators, we believe that there would be significant cannibalization of bus ridership upon full opening of the CCL at the end of 211. Fig 8. Bus ridership Bus ridership (') FY13E FY12E FY11E FY1 FY9 FY8 FY7 FY6 5

6 ComfortDelGro Corporation Ltd 24 March 211 SEGMENTAL FORECASTS Among the various segments, we expect the strongest growth from the Rail & Taxi business. As we had discussed above, the increase in ridership will likely lead to increase in revenue from the rail operations. The Taxi business will likely exhibit strong performance due to full year contributions from newly acquired Swan Taxi from Australia. Furthermore, we expect high hire out rates in Singapore due to strong demand for Taxis from increased visitor arrivals. We also expect the bus segment to exhibit very moderate growth in FY11 as the high energy cost could cap profit contributions. In particular, Singapore s bus business could suffer from lower advertising revenue and the delay in fare price adjustments by the Public Transport Council. Fig 9. Revenue (LHS) & EBIT (RHS) Forecasts 1 1,8 1,6 1,4 1,2 1, FY9 FY1 FY11E FY12E FY13E Bus Taxi Automotive Engineering Bus EBIT Taxi EBIT Automotive Engineering EBIT Fig 1. Revenue (LHS) & EBIT (RHS) Forecasts FY9 FY1 FY11E FY12E FY13E BS Rail VIT Car rental Driving centre Rail EBIT VIT EBIT BS EBIT Car rental EBIT Driving centre EBIT *VIT refers to Vehicle Inspection & Testing EARNINGS FORECASTS Earnings forecasts. Overall, we expect CDG to continue their growth trend over the next 3 years with forecasted earnings growth of %

7 ComfortDelGro Corporation Ltd 24 March 211 Fig 11. Earning Forecasts 3,6 3,5 3,4 3,3 3,2 3,1 3, 2,9 2,8 FY9 FY1 FY11E FY12E FY13E Revenue EBITDA EBIT PATMI RATIO ANALYSIS Defensible Profit margins. As a Group, we expect the profit margins to be maintained over the next three years. The profit contributions from the other segments are likely to offset negative effects due to higher energy costs. Fig 13. Profit margins 25% 2% 15% EBITDA margin EBIT margin Net Profit margin 1% 5% FY6 FY7 FY8 FY9 FY1 FY11E FY12E FY13E VALUATION Dividend policy. CDG has a dividend policy of paying out at least 5% of PATMI to shareholders. The ability to pay out higher dividends to shareholders is largely dependent on the company s cash needs for acquisitions. The Group currently has a strong war chest with S$567mn of cash that could give more leeway for higher dividend payout. Hence, we assumed a payout ratio of 55% in forecasting our dividends. Fig 14. Dividends DPS (Scents) Payout ratio (%) Source: Company, PSR est. 1% 9% 8% 7% 6% 5% 4% 3% FY13E FY12E FY11E FY1 FY9 FY8 FY7 FY6 FY5 FY4 7

8 ComfortDelGro Corporation Ltd 24 March 211 Valuation: DCF + P/E. In valuing the stock of CDG, we used a blended mix of DCF & P/E to arrive at our target price of S$2.1. For the DCF valuation, we used a COE of 8.2% based on a beta of.744 and market risk premium of 7.%. We used an above average P/E multiple of 17X FY11e PATMI as we expect robust earnings growth in the near future. (refer to Annex B for valuation parameters) Fig 15. T12M P/E Average +1SD -1SD T12M P/E Source: Bloomberg, CapitalIQ, PSR est. Mar-11 Sep-1 Mar-1 Sep-9 Mar-9 Sep-8 Mar-8 Sep-7 Mar-7 Sep-6 Mar-6 Sep-5 Mar-5 Sep-4 Mar-4 Sep-3 Mar-3 Fig 16. Free Cash Flow Source: Company, PSR est. FCFF FCFE FY15E FY14E FY13E FY12E FY11E FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 *FCFF: Free Cash Flow to Firm; FCFE: Free Cash Flow to Equity 8

9 ComfortDelGro Corporation Ltd 24 March 211 COMPANY PROFILE ComfortDelGro Corporation (CDG) is a land transport conglomerate with businesses across various business segments and geography. The largest profit contributors are from the bus and taxi business segment. CDG was formed following the merger of Comfort Group & DelGro Corporation and was listed within the same year in April 23. CDG is a component of the STI. BUSINESS SEGMENTS The two largest business segments of CDG are their bus and taxi businesses. While the businesses are segmented according to their business types, it is important to note that individual business types can operate under very different business models and have varied business exposures. Fig 17. Revenue spread (FY1) Fig 18. EBITDA spread, RHS (FY1) 2.6% 1.% 1.2% 4.9% 2.5% 2.% 9.4% 3.6% 4.2%.7% 5.3% BUS Fig 19. Bus revenue spread (FY1) China Bus 3.8% Bus Bus Station Rail Taxi Auto. Engineering VIT Car rental Driving centre Source: Company, PSR 6.2% 38.9% 1.8% 3.9% 39.8% Australia Bus 23.1% SBST 34.% UK bus 34.8% Source: Company, PSR CDG bus 2.1% SBST ad. & rental 2.2% Key contributors: Singapore, Australia, UK. Singapore bus. Singapore s bus business comprise mainly of scheduled bus services held through their 75% owned, listed company SBS Transit (SBST). 2% of the revenue is derived from ComfortDelGro bus, which is a private bus chartering service. We believe that the scheduled bus service business, held through SBST, could be facing challenges in the long run as we expect cannibalization of bus ridership from the expanding rail network in Singapore. However, being a key mode of public transportation in Singapore, the bus business is likely to observe ridership growth in the near term. Australia bus operations in New South Wales (NSW) & Victoria. According to the NSW government, population is expected to grow by 2mn to over 9mn residents by 236. With more than 7% of journeys in Sydney made by private vehicles, there is plenty of room for the government to develop the public transport sector to cater to its growing population. CDG had grown significantly through acquisitions in Australia s bus business over the years. With further fleet expansions, management also guided that they expect higher revenue from this segment in the coming year. 9

10 ComfortDelGro Corporation Ltd 24 March 211 UK business had been doing well. CDG s wholly owned subsidiary Metroline has a market share of 13% in London s scheduled bus operations. The contributions from the UK business had declined in the past few years due to a weakening GBP, despite continued growth in local currency terms. Bus Station. CDG operates a very profitable bus station in China, known as TianHe Bus Station that is located in Guangzhou. The station enjoyed significant growth in traffic over the past few years. It currently handles c.7k trips/annum, as compared to c.528mn in 24. We believe that there is still room for growth for the operations, as we estimate that the station is currently operating at c.75% capacity. Fig 2. Bus Station financial performance Revenue (CNY) EBIT (CNY) EBIT margin (%) 55% 5% 6 45% 4 2 4% 35% FY1 FY9 FY8 FY7 FY6 FY5 FY4 RAIL Fig 21. Rail financial performance (3) (6) (9) (12) (15) Source: SBST, PSR Revenue EBIT EBIT margin (%) FY3 FY4 FY5 FY6 FY7 FY8 FY9 FY1 4% 3% 2% 1% % -1% -2% -3% -4% ComfortDelGro operates the North-East line (NEL), Sengkang Light Rail Transit (SLRT) & Punggol Light Rail Transit (PLRT) in Singapore through SBST. The rail operations exhibited very strong growth in sales and ridership due to population growth in the North Eastern corridor of Singapore. We expect the rail business to continue to do well as they service key residential areas with high population growth. 1

11 ComfortDelGro Corporation Ltd 24 March 211 TAXI Fig 22. Taxi revenue spread (FY1) China 12.7% Australia.5% Vietnam.8% UK 15.2% Singapore 7.9% Source: Company, PSR Key contributors: Singapore, China, UK. Singapore Taxi. ComfortDelGro is the largest taxi operator in Singapore China Taxi. CDG operates more than 1, taxis in various parts of China. We expect revenue to continue growing due to the company s acquisition of new licenses and fleet expansion. However, profitability could decline slightly due to the increase in mandatory social security contributions. UK Taxi. CDG s UK Taxi operations are mainly in London. As their clientele is mainly corporate customers, this business segment is highly sensitive to business cycles. Their business is currently recovering from a decline in corporate bookings during the economic downturn and had achieved two consecutive quarters of growth. OTHERS Automotive & Engineering Services mainly Singapore & China. This business segment services the company s taxi fleet and private cars. Vehicle Inspection & Testing mainly through VICOM. CDG s other listed subsidiary, VICOM, derive >6% of its sales from non-vehicle Testing & Inspection services of materials for various industries. It has a very strong vehicle inspection business in Singapore with a 7% market share. The vehicle inspection business has very sustainable profit margins due to their competitive position. While vehicle population in Singapore is unlikely to grow significantly in the future, we expect higher COE cost to lead to higher average vehicle age, thus leading to more inspection cycles. Fig 23. VICOM revenue spread (FY1) Others 4.2% Rental 2.1% Inspection 3.4% Test & Inspection 61.1% Assessment 2.2% Source: VICOM, PSR 11

12 ComfortDelGro Corporation Ltd 24 March 211 Fig 24. Vehicle Inspection & Testing (S$ mn) Revenue EBIT EBIT margin (%) 35% 3% % 2% FY1 FY9 FY8 FY7 FY6 FY5 FY4 FY3 Others. CDG also conducts driving lessons for learner drivers in Singapore & China. Car rental in Singapore, China & Malaysia. RISKS Regulatory. CDG operates in a highly regulated business in Singapore and its profitability is dependant on changes in the regulatory environment. Firstly, the public transport fares are tightly controlled by PTC and the forecasted fare changes in our analysis may not be realized. Secondly, changes to the method of charging transport fares could affect public transport fares. For example, the implementation of distance based fare pricing in July 21 changed the revenue collection profile of the company. Lastly, with central transport planning by the LTA, CDG has very little autonomy over how the transport routes can be planned. Foreign currency. The trade off associated with growing their business overseas is that CDG could face lower contributions upon consolidation, due to unfavourable exchange rates. For example, despite a 6% growth in profits from the UK bus business in FY1, their profit contributions in SGD actually declined by 1.5% due to unfavourable exchange rate movements. M & A execution risks. CDG indicated that they intend to continue growing their businesses overseas, aiming to achieve 7% of their revenue from overseas in the long term. Hence, there are associated risk due to mergers & acquisitions (M & A) by CDG. 12

13 ComfortDelGro Corporation Ltd 24 March 211 ANNEX A- BUSINESS BY KEY SEGMENTS Fig A1. Bus Sales Spread by Geography (FY1) Australia Bus 23.1% UK bus 34.8% Source: Company, PSR China Bus 3.8% Fig A3. Australia Bus (AUD mn) CDG bus 2.1% SBST 34.% SBST ad. & rental 2.2% Fig A2. SBST, including ad. & rental (SGD mn) QFY8 2QFY8 3QFY8 4QFY8 1QFY9 Fig A4. UK Bus (GBP mn) 2QFY9 3QFY9 4QFY9 Revenue (SGD) EBIT (SGD) EBIT margin (%) 1QFY1 2QFY1 3QFY1 4QFY1 12% 1% 8% 6% 4% 2% % Revenue (AUD) EBIT (AUD) EBIT margin (%) 22% 2% 18% 16% 14% 12% 1% Revenue (GBP) EBIT (GBP) EBIT margin (%) 12% 1% 8% 6% 4% 2% % 4QFY1 3QFY1 2QFY1 1QFY1 4QFY9 3QFY9 2QFY9 1QFY9 4QFY8 3QFY8 2QFY8 1QFY8 4QFY1 3QFY1 2QFY1 1QFY1 4QFY9 3QFY9 2QFY9 1QFY9 4QFY8 3QFY8 2QFY8 1QFY8 Fig A5. Rail & SBST bus ridership ( mn) Fig A6. Rail (SGD mn) Rail ridership Bus ridership Revenue (SGD) EBIT (SGD) EBIT margin (%) 24% 22% 2% 18% 16% 14% 12% % 4QFY1 3QFY1 2QFY1 1QFY1 4QFY9 3QFY9 2QFY9 1QFY9 4QFY8 3QFY8 2QFY8 1QFY8 4QFY1 3QFY1 2QFY1 1QFY1 4QFY9 3QFY9 2QFY9 1QFY9 4QFY8 3QFY8 2QFY8 1QFY8 Fig A7. Taxi Sales Spread by Geography (FY1) Fig A8. Singapore Taxi (SGD mn) China 12.7% Australia.5% Vietnam.8% 25 2 Revenue (SGD) EBIT (SGD) EBIT margin (%) 14% 13% 12% UK 15.2% % 1% 9% 8% 7% Source: Company, PSR Singapore 7.9% 1QFY8 2QFY8 3QFY8 4QFY8 1QFY9 2QFY9 3QFY9 4QFY9 1QFY1 2QFY1 3QFY1 4QFY1 6% 13

14 ComfortDelGro Corporation Ltd 24 March 211 Fig A9. UK Taxi (GBP mn) Fig A1. China Taxi (CNY mn) Revenue (GBP) EBIT (GBP) EBIT margin (%) 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Revenue (CNY) EBIT (CNY) EBIT margin (%) 45% 4% 35% 3% 25% 2% 15% 4QFY1 3QFY1 2QFY1 1QFY1 4QFY9 3QFY9 2QFY9 1QFY9 4QFY8 3QFY8 2QFY8 1QFY8 4QFY1 3QFY1 2QFY1 1QFY1 4QFY9 3QFY9 2QFY9 1QFY9 4QFY8 3QFY8 2QFY8 1QFY8 Fig A11. Currency monitor (AUD & USD) Fig A12. Currency monitor (GBP & CNY) 1.35 AUD:SGD, LHS USD:SGD, RHS GBP:SGD, LHS CNY:SGD, RHS Dec-8 Source: Bloomberg, PSR 3-Jun-1 31-Mar-1 31-Dec-9 3-Sep-9 3-Jun-9 31-Mar-9 3-Sep-1 31-Dec-1 31-Mar-11 3-Jun-11 3-Sep Dec Source: Bloomberg, PSR Mar-1 31-Dec-9 3-Sep-9 3-Jun-9 31-Mar-9 31-Dec-8 3-Jun-1 3-Sep-1 31-Dec-1 31-Mar-11 3-Jun-11 3-Sep Dec * Downslope indicates strengthening of SGD Fig A13. Energy Price monitor Fig A14. T12M P/E (X) Dec-8 WTI (USD/bbl), LHS Electric (SGD/MWh), RHS 31-Mar-9 3-Jun-9 3-Sep-9 31-Dec-9 31-Mar-1 3-Jun-1 Source: Bloomberg, PSR 3-Sep-1 WTI (SGD/bbl), LHS 31-Dec-1 31-Mar-11 3-Jun-11 3-Sep Dec Source: Bloomberg, CapitalIQ, PSR est Average +1SD -1SD T12M P/E Mar-8 Sep-7 Mar-7 Sep-6 Mar-6 Sep-5 Mar-5 Sep-4 Mar-4 Sep-3 Mar-3 Sep-8 Mar-9 Sep-9 Mar-1 Sep-1 Mar-11 14

15 Annex B- Valuation parameters Valuation Methodology Financial Year ending 31st Dec FY11E FY12E FY13E FY14E FY15E FY16E FY17E FY18E FY19E FY2E FY21E FY22E FY23E FY24E FY25E FY26E FY27E FY28E FY29E Method 1: DCF model (FCFE) Stage 1 of FCFE (explicit forecast till FY15e) CFO CAGR (FY1A to FY15e) 4.78% Stage 2 of FCFE grow th (FY15e to FY29e) Fade stage grow th to terminal (%) 1.% Grow th fade per year.27% Stage 3 of FCFE growth (beyond FY29e) Terminal grow th, g (%) 1.% Adjusted FCFE Terminal FCFE 5,716.2 Discount rate (%) 8.2% (Rf=3.%, Risk premium=7%, β=.74) Discounted FCFE to FY11e ,54.6 Sum of Discounted FCFE to FY29e 4,392. Add: Net Cash. Intrinsic Value (S$ 'mn) 4,392. Method 2: P/E (X) P/E target multiple (X) 17. FY11e PATMI Target Value (S$'mn) 4,23.2 Blended Value (Simple Average) (S$'mn) 4,27.6 Divided by outstanding no. of shares ('mn) 2,88.9 Target Price per share (S$) 2.1 Current Market Price (S$) 1.51 F12M DPS (S$).62 Price upside (%) 33.4% Dividend yield (%) 4.1% Total return (%) 37.5%

16 Financials Income Statement for FY ending 31 December (SGD 'million) 29A 21A 211E 212E 213E Balance Sheet for FY ending 31 December (SGD 'million) 29A 21A 211E 212E 213E Revenue 3,51.8 3,26.9 3, , ,494.7 PPE 2, , , ,787. 2,938.6 Bus 1,53.9 1, , , ,689.7 Intangibles Bus Station Associates & JVs Rail Others Taxi ,43. 1,67.8 1,112.3 Total non-current assets 3,189. 3,38.9 3, ,791. 3,944.9 Automotive Engineering Inventories Vehicle Inspection & Testing Accounts Receivables Car rental & leasing ST Investments Driving centre Cash EBITDA Others..... Depreciation & Amortisation (279.9) (29.9) (31.2) (33.2) (351.9) Total current assets , ,11.2 EBIT Total Assets 4,52.4 4, , , ,956.2 Interest & Investment Income Loans Finance Expense (29.1) (35.7) (41.3) (43.7) (46.) Accounts Payables PBT ex-associates & JVs Others Results of associates & JVs Total current liabilities PBT Loans Taxation (58.4) (78.1) (78.7) (8.3) (83.3) Fuel equalisation account Net Profit Deferred grants Profits to MI Others PATMI Total non-current liabilities , ,198. 1,238. 1,278. Shareholder Equity 1,69. 1,8.5 1,97.7 2,17.7 2,132.8 Growth and Margins (%) 29A 21A 211E 212E 213E Minority Interests Revenue grow th -2.2% 5.1% 3.9% 1.1% 3.7% Total Equity 2, , , , ,771.2 EBIT grow th 14.9% 11.% 3.5% 2.5% 4.1% PATMI grow th 9.7% 4.1% 3.6% 2.1% 3.8% Segmental EBIT margin (%) 29A 21A 211E 212E 213E Bus 8.1% 9.3% 9.3% 9.8% 9.8% EBITDA margin 2.6% 21.2% 21.1% 22.% 22.3% Bus Station 48.1% 46.7% 4.4% 41.% 41.% EBIT margin 11.5% 12.1% 12.1% 12.2% 12.3% Rail 17.1% 19.% 19.4% 19.% 19.% Net Profit Margin 9.% 9.% 8.9% 9.% 9.% Taxi 11.3% 12.1% 12.5% 11.9% 12.1% Key operating statistics 29A 21A 211E 212E 213E Automotive Engineering 16.7% 13.% 11.% 12.% 12.% Bus ridership ('mn) Vehicle Inspection & Testing 32.% 32.6% 32.8% 33.% 33.% Rail ridership ('mn) Car rental & leasing 13.2% 17.6% 16.% 15.% 15.% Cashflow (SGD 'million) 29A 21A 211E 212E 213E Driving centre 28.4% 29.8% 29.% 29.% 29.% CFO Key Exchange rates 29A 21A 211E 212E 213E PBT USD:SGD Adjustments AUD:SGD Cash from ops before WC changes GBP:SGD WC changes (61.) 3.9 (3.8) 4.6 CNY:SGD Cash generated from ops Per share data (SGD) 29A 21A 211E 212E 213E Taxes paid, net (52.3) (43.8) (78.7) (8.3) (83.3) Basic EPS Interest paid (29.2) (35.3) (41.3) (43.7) (46.) Diluted EPS Cashflow from ops Dividend CFI Book value CAPEX (452.) (491.8) (492.6) (465.) (465.) Free cashflow to equity Dividends/Interest from Investments Proceeds from disposals Key Ratios 29A 21A 211E 212E 213E Investments in subs & associates (18.1) (47.1)... ROE (%) 13.5% 13.1% 12.8% 12.3% 12.1% Others..... ROA (%) 7.4% 6.8% 6.6% 6.5% 6.5% Cashflow from investments (537.6) (399.7) (479.1) (451.7) (451.7) Financial leverage (X) CFF Payout ratio 5.3% 5.3% 55.% 55.% 55.% Share issuance Current ratio (x) Loans, net of repayments Dividends to shareholders (14.9) (112.1) (129.5) (131.7) (135.6) Valuation 29A 21A 211E 212E 213E Others 22.3 (32.2) (29.8) (3.2) (31.3) P/E (x) Cashflow from financing (64.7) (69.6) (159.3) (161.9) (167.) P/FCFE (X) Net change in cash (24.4) Price/Book(x) CCE, begin Enterprise Value, EV (S$ 'mn) 3, , , , ,154.4 Effects of exchange rates (19.6) (6.9)... EV/EBITDA (X) CCE, end Dividend yield (%) 3.1% 3.5% 4.1% 4.2% 4.3% Source: Phillip Securities Research Pte Ltd

17 ComfortDelGro Corporation Ltd 24 March 211 Ratings History ComfortDelGro Corporation Ltd Rating Date Closing price (S$) Fair value (S$) Remarks Buy 24 March Update: Change of Analyst Buy 15 February FY1 Results Buy 23 December Update Buy 15 November Q1 Results Buy 16 August Q1 Results Hold 12 August Preview Buy 4 June Update Buy 17 May Q1 Results Hold 11 February FY9 Results Buy 18 November Q9 Results Hold 18 May Q9 Results Hold 9 March Initiating Coverage Phillip Research Stock Selection Systems TRADING BUY Share price may exceed 1% on the upside over the next 3 months, however longer-term outlook remains uncertain BUY >15% upside from the current price HOLD -1% to 15% from the current price SELL >1% downside from the current price TRADING SELL Share price may exceed 1% on the downside over the next 3 months, however longer-term outlook remains uncertain We do not base our recommendations entirely on the above quantitative return bands. We consider qualitative factors like (but not limited to) a stock's risk reward profile, market sentiment, recent rate of share price appreciation, presence or absence of stock price catalysts, and speculative undertones surrounding the stock, before making our final recommendation 17

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