ComfortDelGro Corporation’s 1Q FY14 results were largely in line with market expectations. Excluding the currency translation effect arising from the stronger Sterling Pound and Chinese Renminbi, revenue actually rose by 8.7% yoy to $947 mln underpinned by broad-based growth in its key businesses (except for the car rental and leasing business).
Not surprisingly, local bus operations continued to be in the red, losing $4.7 mln for 1Q due to higher operating costs while rail operations also incurred a slight operating loss of $1.0 mln, attributed mainly to start-up costs associated with the Downtown Line (DTL). Nonetheless, net proï¬� t still grew by 9.7% yoy to $63.3 mln due to strong overseas contribution, which now accounted for 50.8% of total group operating proï¬�t.
We expect the announced fare adjustments which took effect last month will help to mitigate some of the cost pressures going forward. In addition, the core rail business (excluding advertising and rental) should be able to breakeven along with the improvement in average daily ridership for DTL1 from the current 54,000.
With the share price already running ahead of the results, we think that the stock may be prone to profit-taking in the short term . Nevertheless, we continue to prefer ComfortDelGro over SMRT on cheaper valuations as well as its geographical/ business diversification. Recommend Buy on weakness.