1.46
May 17, 2020
ComfortDelGro (CD SP) BUY Comfort in the unknowns Share Price SGD 1.46 12m Price Target SGD 1.99 (+36%)
Initiate with BUY; Defensive long term Company Description Reinitiate coverage of ComfortDelGro (CDG) with BUY and DCF-based TP ComfortDelGro is a land transport conglomerate. Its of SGD1.99 (WACC: 8.2%, LTG: 1%). 63% of CDG’s revenues are secured by diversified business includes interests in taxi, bus and contracts. Hence, every one month extension of the lockdown in rail globally. Singapore will reduce PAT by just 0.3%, we estimate. Our FY20/21E dividend payout assumptions of 60% are conservative (vs. 73% 5-year average) and offers 3.3% yield (a 220bps spread over 10-year SG bonds).
Statistics FY19 dividend payout ratio of 80% would imply a 4.4% yield. The 52w high/low (SGD) 2.84/1.39 pandemic notwithstanding, we believe longer-term public policy and ESG 3m avg turnover (USDm) 19.1 preferences will favour public transport. Together with a strong track record of accretive M&A in overseas markets, CDG offers significant Free float (%) 98.5 exposure to this long-term structural theme. Issued shares (m) 2,166 Market capitalisation SGD3.2B Industrials Increasingly defensive revenue base USD2.2B 63% of CDG’s FY19 revenue came from stable, non-volatile BCMs (bus contracting models) that are not affected by volatility in passenger Major shareholders: numbers caused by Covid-19. A primary focus of overseas acquisitions has Blackrock Fund Advisors 7.8% The Vanguard Group, Inc 2.9% been on public transport operators with BCMs. We estimate overseas Capital Research & Management Co 2.5% revenues will overtake domestic revenue by 2023E and will further improve earnings visibility and reduce earnings risks through increased Price Performance diversity. CDG’s SGD1b M&A warchest, implying 25% net gearing, can potentially add 6-21% to our base case TP. Management is comfortable 3.00 170 with up to 40% net gearing. 2.80 160
2.60 150 Singapore Taxi, train risks are ‘known unknowns’ 2.40 140 We estimate every one month extension of the lockdown would reduce 2.20 130 PAT by only 0.3%. We note that in Singapore, new infection rates have 2.00 120 fallen 53% from their peak. As a result, if the lockdown is not extended this would be an upside catalyst. Competition between taxis and private 1.80 110 hire super-Apps is moderating as the latter looks to expand in higher- 1.60 100 margin, non-transportation segments. In addition, lower fuel costs due to 1.40 90 1.20 80 falling oil prices and government subsidies should reduce opex pressure May-18 Aug-18 Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 in the near term. Offers value and structural growth ComfortDelGro - (LHS, SGD) ComfortDelGro / Straits Times Index - (RHS, %) Near-term Covid-19 disruptions notwithstanding, we believe longer-term -1M -3M -12M public policy support and ESG imperatives will continue to structurally Absolute (%) (4) (33) (42) favour public transport over private vehicle ownership. Singapore is Relative to index (%) (1) (15) (26) committed to zero-car growth for example. CDG offers exposure to this Source: FactSet theme, while trading at a 42% P/B discount to its historical mean. Its balance sheet remains strong and free cashflow will be positive over FY20/21E, thus supporting dividends. We note that CDG’s share price rebounded by 75% and 90% in 8-10 months following SARS and GFC, respectively.
FYE Dec (SGD m) FY18A FY19A FY20E FY21E FY22E BCM: Bus contracting model Revenue 3,805 3,906 3,606 3,834 3,882 EBITDA 833 869 748 820 841 Core net profit 303 265 174 245 254 Core EPS (cts) 14.0 12.2 8.0 11.2 11.7 Core EPS growth (%) 0.6 (12.9) (34.3) 40.3 4.0 Net DPS (cts) 10.5 9.8 4.8 6.7 9.4 Core P/E (x) 15.0 19.5 18.2 13.0 12.5 P/BV (x) 1.7 2.0 1.2 1.2 1.1 Net dividend yield (%) 5.0 4.1 3.3 4.6 6.4 ROAE (%) 11.6 10.2 6.7 9.2 9.2 ROAA (%) 6.1 5.0 3.2 4.4 4.5 EV/EBITDA (x) 5.9 6.5 4.5 4.0 3.9 Net gearing (%) (incl perps) net cash 1.3 net cash net cash net cash Consensus net profit - - 224 269 283 MKE vs. Consensus (%) - - (22.3) (9.1) (10.2)
Kareen Chan [email protected] (65) 6231 5926
THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH Co. Reg No: 198700034E MICA (P) : 099/03/2012 SEE PAGE 31 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS ComfortDelGro
Value Proposition Price Drivers
. Land-transport conglomerate with business in public Historical share price trend transports and taxis across Singapore, Australia, 3.40 170 1 UK/Ireland and China. 3.20 4 160 3.00 150 . Singapore is the largest EBIT contributor at 64%. 2 2.80 3 5 140 UK/Ireland at 12%, Australia at 15% and China at 9%. 2.60 130 2.40 120 . Public transport is the largest EBIT contributor at 49%, 2.20 110 with ~85% of revenue from regulated returns, followed by 2.00 100 1.80 90 taxis at 30% and others at 21%. 1.60 80 . Taxi industry is showing signs of stabilisation with 1.40 70 1.20 60 regulators levelling the playing fields of players, while May-15 May-16 May-17 May-18 May-19 May-20
ride-hailing companies (Grab and GoJek) are shifting their ComfortDelGro - (LHS, SGD) focus to other businesses. ComfortDelGro / Straits Times Index - (RHS, %) . CDG seeking to expand its geographical exposure through overseas acquisitions, with overseas businesses taking a Source: Factset bigger proportion.
EBIT driven by public transport 1. Uber entered Singapore market. Aggressive expansion seen as a threat to taxi business. [] 2. Taxi market share began to decline amid heightened 100% competition from ride-hailing players. Lost tender for 80% Thomson-East Coast Line. 3. Uber exited Singapore via merger with Grab seen as 60% industry consolidation. 4. Entry of Gojek heightened risk perception of taxi 40% business.Uber entered Singapore market. Aggressive 20% expansion seen as a threat to taxi business. 5. Rental waiver given to taxi drivers amid Covid-19 0% outbreak in Singapore translate to revenue loss to the 2013 2014 2015 2016 2017 2018 2019 2020E2021E2022E group.
Public transport services (Bus + Rail) Taxi Others . Source: Company
Financial Metrics Swing Factors
. More defensive after Grab-Uber’s consolidation in 2018, Upside coupled with increased contribution from public transport and overseas expansion. . Faster-than-expected stabilisation in taxi industry. . Public transport business continues to be the key . Earnings-accretive acquisition overseas. contributor, while taxis and overseas expansion provides . Higher-than-expected passenger numbers for Singapore incremental growth. Taxi utilisation is the key metric. rails (NEL and DTL) or new bids for railway lines under Consistent cashflow generation to support 80% payout contract model. ratio. Downside Consistent dividend payouts from healthy cashflows
. Higher-than-expected operating cost for railways in (SGD m) (%) Dividend FCF Dividend payout ratio (RHS) Singapore. 500 100 . Decline in taxi utilisation or heightened competition 400 80 (fares and for drivers) from ride-hailing players. 300 60 . Lower-than-expected ridership in Singapore. 200 40 100 20 - -
Source: Company
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1. Focus Charts
Fig 1: 63% of FY19 revenue was stable from BCM contracts Fig 2: Estimated changes in EPS if circuit-breaker measures are extended by 2/4/6 weeks If circuit breaker Additional revenue EPS Changes measures are loss for CDG (SGD m) extended by
2 weeks 8.5 -0.2%
4 weeks 17.0 -0.3%
6 weeks 25.5 -0.5%
Source: Company data, Maybank Kim Eng Source: Maybank Kim Eng
Fig 3: Taxi fleet showing first uptick in Jan (pre-Covid-19) Fig 4: Share price surged 75% in 9-10 months after SARS
Fleet size % 18,000 5.0 16,000 0.0 14,000 12,000 -5.0 10,000 -10.0 8,000 6,000 -15.0 4,000 -20.0 2,000 - -25.0 2014 2015 2016 2017 2018 2019 2020
CDG + City Cab Growth
Source: LTA Source: Company data, Maybank Kim Eng
Fig 5: Historical P/B: Trading at 2SD away from historical Fig 6: Dividend well supported by FCF mean
Source: Company data, Maybank Kim Eng Source: Company data, Maybank Kim Eng
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2. Investment Summary
2.1 Public Transport: Bigger and Stronger Earnings Base
63% of revenues are stable and dependable The complete transition to the bus-contracting model (BCM) scheme in Singapore since 2016 represents the bedrock of CDG’s earnings. In 2019, we estimate this accounted for 46% of total EBIT. The BCM scheme removes risks from fluctuation in ridership numbers.
Under BCM, the Land Transport Authority (LTA) will determine the bus services and service standards to be provided, and bus operators will bid for the right to operate these services. In return, they will be paid fixed fees and incentives upon meeting standards set by the LTA, while fare revenue will be retained by the government.
As part of the new bus industry model, the government owns all bus infrastructure such as depots, as well as operating assets such as buses and fleet management system.
As seen from Fig 7, the public transport segment’s contribution to total revenue has grown from 57% in 2016 to 74% in 2019. Within this segment, ~85% of FY19 revenue was from the BCM scheme, while the remaining 15% was from its Singapore railway business.
Fig 7: Public transport contributed more to revenue since 2016
% 100 11 10 11 10 9 90 17 80 22 19 33 70 32 60 50 40 63% were stable, 71 74 67 non-volatile BCM 30 57 57 revenue 20
10 0 2015 2016 2017 2018 2019 Public Transport (BCM) Taxi Others
Source: Company data
Train prospects brighter in the long term The Singapore railway business remains the main drag in the public transport segment. This is mainly because Downtown-Line (DTL) ridership has been lower than what LTA forecasted. But the gap between forecast and actual ridership has been closing rapidly in the past two years. Covid- 19 circuit breakers will reverse this trajectory in 2020E, but structurally ridership gaps should dissipate in a normalised operating environment as riders start adopting DTL as their preferred route.
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Fig 8: DTL ridership vs LTA forecasts
Average daily ridership 600,000
500,000
400,000
300,000
200,000
100,000
- 2017 2018 2019
DTL average daily ridership LTA initial forecast *
Source: LTA, SBS Transit
Going forward, railway revenue should improve and EBIT loss from the railway business should narrow as operating leverage improves.
Fig 9: Estimated railway revenue within the public transport segment
SGD 'm 3,500
3,000
2,500
2,000
1,500
1,000
500
0 2016 2017 2018 2019 2020E 2021E 2022E
Rail (estimated) Bus (estimated)
Source: Company data, Maybank Kim Eng
The upcoming Thomson East Line (TEL) is already tendered to SMRT under the government contracting model, similar to the bus contracting framework to reduce revenue uncertainty for the operator due the complexity of the project (station interchanges linked to other MRT lines).
Fig 10 shows SMRT’s (Not Rated, almost a pure railway operator), profitability. It is experiencing losses due to falling revenues and rising operating costs. The existing railway revenue model is unlikely to be sustainable if the government wants increased participation of private operators in future railway projects. As a result, we expect future railway contracts may adopt the BCM framework to provide better operating visibility for private players.
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Fig 10: SMRT’s net loss continues to widen due to decline in revenue and rise in operating costs
SGD 'm 1000
800
600
400
200
0 FY16 FY17 FY18 FY19 -200
-400
Revenue EBIT PAT
Source: SMRT
This would be a catalyst for CDG as it will bid for new railway projects, and it should further reduce group revenue volatility.
Stable, overseas revenue contributions set to overtake domestic revenue by 2023E CDG has been increasingly investing overseas to supplement its Singapore earnings base. Overseas revenues have increased from 26% of total revenue in 2003 to 42% in 2019. A primary focus of overseas acquisitions has been ensuring revenue stability. 42% of its acquisitions since 2014 have BCM-like revenue schemes in place, especially in its major markets such as Australia. According to management, CDG is constantly on the lookout for earnings-accretive deals in developed countries where the government is supportive of public transport and operates on BCM-like schemes.
Possible acquisition targets include those in Australia and the UK, where CDG continues to establish a stronger foothold, as well as new markets such as the Middle East and Continental Europe.
Progressively, we expect overseas revenues to make up the majority of CDG’s revenue in the long run. By 2023E, we estimate overseas revenues may overtake domestic revenues for the first time.
Fig 11: Geographical revenue breakdown
% 100 90 80 40 37 41 41 42 44 48 50 52 70 60 50 40 30 60 63 59 59 58 56 52 50 48 20 10 0 2015 2016 2017 2018 2019 2020E 2021E 2022E 2023E Singapore Overseas
Source: Company data, Maybank Kim Eng
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2.2 Taxi: Rental rebates to impact earnings this year; but industry shows signs of stabilisation pre-COVID-19 outbreak
Pandemic Impact: a known, unknown Taxi contributed only 17% of total revenues in 2019. Taxi ridership has fallen off a cliff as the pandemic has progressed. It has been further impacted by Singapore’s circuit breakers as all non-essential businesses and services are closed until 1 June. As a response to this, CDG has provided several rounds of rental rebates for taxi drivers amid increasingly stricter social distancing rules implemented by the government. The rental rebates are likely to amount to ~SGD115m if fully implemented. CDG has provided full rental waivers to taxi drivers from Apr to Jun amid the circuit breaker. This will have a significant downside impact to the earnings of the taxi segment.
Fig 12: Rental rebates given to taxi drivers since Feb 2020 Date Description Effective date Total Estimated cost number for CDG* From Till of days (SGD m) 14-Feb-20 SGD20/day rental rebate of which SGD10 by government 15-Feb-20 20-Feb-20 6 1
20-Feb-20 Additional SGD16.50 rental rebate per day 21-Feb-20 25-Mar-20 34 6
25-Mar-20 Additional SGD10 rental rebate per day. Extending total 25-Mar-20 30-Mar-20 6 2 rental rebate of SGD46.50 till 30 Apr
30-Mar-20 Total rental rebate of SGD46.50 rental rebate per day, 30-Mar-20 30-Sep-20 185 73 extended till Sep. Of which SGD10 is from government
4-Apr-20 Full rental waiver during circuit breaker measures 7-Apr-20 4-May-20 28 16
22-Apr-20 Extended rental waiver during circuit breaker measures 4-May-20 1-Jun-20 29 17
Total cost 115
*Assumes 10,823 taxis based on Feb LTA data and daily rental rates of ~SGD100 Source: Company data, Maybank Kim Eng
Our base case assumes circuit breakers continuing until 1 June, which may result in taxi revenue contribution declining to 14% of total revenue in FY20E vs an average of 25% for the past five years.
We acknowledge the situation is fluid and the lockdown could be extended. Our sensitivity analysis shows that a further one-month extension would lower EPS by just 0.3%.
Fig 13: Estimated change in EPS if circuit breaker measures were extended If circuit breaker measures Additional revenue loss for EPS Changes are extended by CDG (SGD m) 2 weeks 8.5 -0.2% 4 weeks 17.0 -0.3% 6 weeks 25.5 -0.5%
Source: Maybank Kim Eng
That said, upside catalyst would come from lifting of social distancing measures and the subsequent recovery of the taxi business. During SARS, we note that taxi drivers’ average net income returned to SGD66 (from SGD46/ day) one week after Singapore was removed from the WHO’s list of SARS-affected countries.
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More rational competition?
Before the Covid-19 outbreak, the taxi industry was showing early signs of stabilisation. Competition amongst taxis and private hire car (PHC) players had been rationalising since the peak of competition in 2016, helped by the merger of Grab-Uber in early 2018.
But incentives for both ride-hailing drivers and passengers have been decreasing over the years since 2016, despite the recent entry of Indonesian superapp Gojek.
Fig 14: Reduced riders and drivers’ incentives post-Grab-Uber merger 21 Feb 2020 •Grab suspended incentive scheme which give bonus to drivers who are able to hit at least 13 Sep 2019 200 trips a month. •Grab It also pegged the removed level of support minimum given as part of earnings COVID-19 guarantee assistance package and to driver incentives performance. for drivers
5 Feb 2019 2 Mar 2020 •Gojek •Major reduced devaluation of drivers' GrabReward incentives by Program, 32-70% cutting points earning rates by up to 60% and increase award prices by up to 39%
Source: Company data, Maybank Kim Eng
This is because PHCs have been shifting their focus to other non- transportation businesses to improve profitability. Grab aims to become a one-stop, on-demand services provider within the region with its latest USD850m raised.
Grab recently launched several business verticals and it’s now placing more emphasis on its expansion into financial services across Southeast Asia. The company is also looking to co-develop financial products and solutions with strategic investors.
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Fig 15: Grab services have expanded beyond PHC transport Fig 16: Gojek looks to expand beyond ride hailing in Singapore Grab Description of services GoJek Description of services Transport Point to Point transportation with upfront prices Gojek Ride hailing services Food Food delivery GoRide* Motorbike ridesharing Cashless wallet payments to merchants and/or Grab GoSend* Food delivery Pay services GoMart* Groceries services GrabFinance Business loan funding for SMEs Includes on-demand services such as GoClean GrabVentures Accelerator programme for growing startups GoLife* (housecleaning), GoMassage (spa & massage), GoAuto GrabAds Advertisements (car wash) Delivery On-demand delivery of documents or packages * In Indonesia only
Handpicked groceries delivery from store to door Source: Gojek Fresh within an hour or at scheduled time Tickets Movie tickets booking Videos On-demand video streaming Hotels Hotels booking Subscription Subscription plans on GrabFood and Grab rides Insurance Travel insurance and Grab ride coverage Gifts Grab rides and GrabFood vouchers
Source: Grab
Most importantly, CDG’s taxi fleet had contracted at a slower pace since the Grab-Uber merger in 2018. CDG’s fleet size grew for the first time in Jan 2020 since 2014.
Fig 17: CDG’s taxi fleet and growth rate as of Jan
Fleet size % 18,000 5.0 16,000 0.0 14,000 12,000 -5.0 10,000 -10.0 8,000 6,000 -15.0 4,000 -20.0 2,000 - -25.0 2014 2015 2016 2017 2018 2019 2020
CDG + City Cab Growth
Source: Company data, Maybank Kim Eng
Additionally, we think that the private-hire players are looking at survival and prolonging cash burn at this point in the Covid-19 outbreak, rather than growth.
2.3 Still a dividend play
Media reports have increased on companies across markets that have recently slashed or cancelled dividends as a liquidity preservation tool. Given the impact of slowing ridership for both railway and taxis, there are significant fears that CDG may also follow a similar path.
However, the majority of companies that have cancelled dividends have high gearing levels, negative free cash flow and/or are recipients of government bailouts. For CDG, we note its FCF yield on average has been 170bps above the dividend yield.
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Fig 18: Net gearing, FCF yield and dividend yield
% 10.0
5.0
0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 -5.0
-10.0
-15.0
-20.0
Net gearing Dividend Yield FCF Yield
Source: Company data, Maybank Kim Eng
As a result, we believe scenarios where dividends are cancelled, or no dividends are paid have lower relative probability.
For 2020E, we conservatively estimate the payout ratio to fall 20ppts to 60% and remain at this level for 2021E.
This implies a FY20/21E dividend yield of 3.3% and 4.6%.
Even at this lower payout ratio, the dividend yield spread between the 10- year Singapore government bond and CDG’s yield is in line with the historical average of 2%.
Fig 19: Yield spread between 10-year SG gov’t bond and CDG’s yield % 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021E
Yield spread Average yield spread
Source: Company data, Maybank Kim Eng
CDG’s share price weakness can be attributed to the escalation of Covid- 19 outbreak and increasingly stringent social distancing rules. The stock has fallen 39% YTD.
During SARS, it took 9-10 months for CDG’s share price to recover and it surged 75% thereafter. Similarly during GFC, it took eight months for the stock to recover 43% from its trough.
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Fig 20: 9-10 months for CDG share price to recover during Fig 21: 8 months for CDG share price to recover during GFC SARS
SGD 1.40 SGD 2.40 1.30 2.20 1.20 2.00
1.10 1.80 1.60 1.00 1.40 0.90 1.20 0.80 1.00 0.70 0.80
0.60 0.60 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Source: Factset Source: Factset
CDG’s current share price is supported by FY20E dividend yield of 3.3%. Singapore’s lockdown and social distancing measures are starting to contribute to the flattening of the Covid-19 new infection curve. Since the peak in April, daily new infections have fallen 53%.
Fig 22: Daily new infection rate in Singapore
1,600
1,400
1,200
1,000
800
600
400
200
0 Jan-20 Feb-20 Mar-20 Apr-20
Source: MOH
2.4 ESG preference for public transport to benefit CDG
Governments in developed countries have been pushing for the use of public transport and electric vehicles to reduce traffic congestion and environmental impact.
For instance, Singapore in 2018 implemented the zero-vehicle-growth policy by freezing the number of private cars and motorcycles on its roads. The government is tightening the new COE (Certificate of Entitlement or the right to vehicle ownership for a period of 10 years) scheme, and quota is falling in line with replacement of de-registered cars.
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Fig 23: Quarterly COE quota and replacements of de-registered car (Cat A and B)
25,000
20,000
15,000
10,000
5,000
0 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20
Replacements of de-registered vehicles COE Quota
Source: Company data, Maybank Kim Eng
Singapore will further push towards its car-lite goal with the impending implementation of satellite-based Electronic Road Pricing (ERP). The new system will charge according to the distance covered on each trip, rather than the present system that only charges when travelling under gantries positioned at bottleneck zones.
Meanwhile to support its 2040 Land Transport Master Plan where door-to- door journeys in city and neighbourhoods can be done in 45mins and 20mins respectively, Singapore is enhancing its public transport system with increasing railway connectivity and bus frequencies.
LTA will be improving island-wide rail connectivity through expansion of the current rail network over the next 20 years.
Fig 24: Singapore Railway Plan 2020 Complete Thomson-East Coast Line (Phase 1) 2021 - 2030 Complete Thomson-East Coast Line (Phase 3, 4, 5) Extend Thomson-East Coast Line to Changi Airport Complete Jurong Region Line Complete Cross-Island Line (in phases) Complete Integrated Transport hub (bus interchanges in 10 regions) 2031 - 2040 Extend Downtown Line to Sungei Kadut Interchange and North-South Line
Source: LTA
CDG offers ESG exposure given its market-leading position in the taxi and bus segments in Singapore.
Beyond Singapore, CDG is on a constant lookout for acquisitions in countries where governments favour public transport over private transport. This includes the UK, Australia, Continental Europe and the Middle East.
In order to tackle the growing population and road congestion problems, London’s Transport Strategy set out plans to reduce car dependency and it has pledged to cut the number of car journeys by 3m each day. This translates to increase in the number of people that walk, cycle and use public transportation to 80% by 2041, up from 64% in 2016.
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London Transport Strategy 2018 includes: Increase proportion of people walking, cycling and taking public transportation to 80% by 2041, up from 64% in 2017 Aim for 70% of Londoners to live within 400m of cycle route by 2041 Restrict car parking provision within new developments Improve quality of bus services by reviewing and extending operating times of bus lanes, making greater provision for bus priority lanes
Meanwhile in Stockholm, Sweden city authorities have been increasing the supply of public transportation to reduce inner-city congestion. Steps to further improve air quality and regulate access to polluting vehicles include: Invest in improvements to infrastructure for public transport and cycling Increase parking charges Promote car sharing Stimulate the purchase and use of cleaner cars
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3. Financial analysis and forecasts
3.1 Topline and operating profit The bulk of CDG’s earnings come from its BCM-based public transport services globally. Over the long run, its earnings base should become more defensive given its acquisition guideline, ie, acquire only operators operating under BCM or a similar scheme.
On the other hand, its taxi and railway business are vulnerable to market risks.
Barring any future acquisitions, we forecast FY20 public transport revenue to decline by 3.5% YoY, as we are anticipating a 30% overall fall in annual train ridership YoY amid Covid-19 outbreak for nine months. This is partially mitigated by the 7% fare hike implemented in Dec ’19. Excluding the fare hike, revenue would have been down 4.5% in our estimates.
Fares are reviewed annually by the Public Transport Council to ensure they can keep up with changing costs of running a public transport system smoothly. Based on a formula (newly revised in 2018 to include network capacity factors to better reflect rising operating costs), public transport fares can be adjusted upwards or downwards.
Fig 25: Bus and rail fare adjustment since 2014
Source: PTC
We are building in a 3.4% rise in FY21E revenue when the situation eases and the full impact of the Dec’19 fare hike is felt.
Meanwhile, we expect a 25% fall in its taxi business due to SGD115m in rental rebates given to taxi drivers, as the rental rebates translate to revenue loss for CDG.
Going forward, we project a 23% recovery in the taxi segment in FY21E as rental rates normalise upon easing of Covid-19 measures.
Fig 26: Segmental revenue breakdown
2017 2018 2019 2020E 2021E 2022E Public transport services 2,402 2,712 2,880 2,781 2,876 2,904 Taxi 788 727 669 501 617 632 Others 386 366 357 324 342 346 Total revenue 3,576 3,805 3,906 3,606 3,834 3,882
Public transport y-o-y growth 4.1% 12.9% 6.2% -3.5% 3.4% 1.0% Taxi y-o-y growth -41.3% -7.8% -8.0% -25.0% 23.0% 2.5% Revenue growth -11.9% 6.4% 2.6% -7.7% 6.3% 1.3%
Source: Company data, Maybank Kim Eng
Meanwhile, EBIT margin for FY20E would mainly be hurt by the taxi segment, as operating cost should remain similar to that of FY19. This translates to a taxi EBIT margin of 4%, with overall margin projected to be 8.2%.
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Fig 27: EBIT margin breakdown by segments
% 30
25
20
15
10
5
0 2018 2019 2020E 2021E 2022E
Public transport services (Bus + Rail) Taxi Others Overall
Source: Company data, Maybank Kim Eng
3.2 Balance sheet Our model did not take into account any acquisitions this year as management did not provide any guidance. That said, we are building in an increase in capex over the next three years as CDG looks to expand its overseas business through acquisitions and as fleet replacement continues.
Fig 28: Capex projection
2018 2019 2020E 2021E 2022E
Capex 254 347 381 495 495
Source: Company data, Maybank Kim Eng
Management is willing to spend up to SGD1b on new overseas acquisitions, but this is a potential war chest rather than a target amount to be spent.
Fig 29: Net gearing
2015 2016 2017 2018 2019 2020E 2021E 2022E Net Gearing (Net Cash) -7.6% -13.6% -9.4% -0.5% 1.3% -8.0% -10.6% -12.1%
Source: Company data, Maybank Kim Eng
If the entire SGD1b is spent this year, net gearing would rise to 25%, which is still healthy as management is willing to gear up to a maximum of 40%.
With or without acquisition, CDG could sustain its 60% payout ratio as dividends have been well supported by free cashflow over the years.
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Fig 30: FCF, dividend and dividend payout ratio
(SGD m) (%) 450 90 400 80 350 70 300 60 250 50 200 40 150 30 100 20 50 10 - - 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E
Dividend FCF Dividend payout ratio (RHS)
Source: Company data, Maybank Kim Eng
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4. Corporate information
CDG is one of the world’s largest land-transport conglomerates with a fleet of 41,600 vehicles as at end-2019, covering businesses such as public buses, railway, taxis, automotive engineering, vehicle inspection and driving centres across Singapore, Australia, the UK, China, Vietnam and Malaysia.
4.1 Public transport: Largest defensive contributor
Under public-transport services are its bus and railway businesses, with the bus business contributing 85% of its total revenue for this segment. The proportion of bus revenue may continue to increase as CDG makes further overseas expansions.
In Singapore, its 75%-owned SBS Transit (SBUS SP, NR) has a leading 60+% market share of scheduled bus routes with 3,400 buses. CDG also operates four major rail systems through SBS: 1) North East Line (NEL) with 16 stations covering 20km; 2) Punggol Light Rail Transit (LRT) with 14 stations; 3) Sengkang LRT with 15 stations; and 4) Downtown Line (DTL) with 34 stations spanning 42km.
Singapore’s bus-operating business was converted to the BCM model in Sep 2016. Under BCM, SBS operates nine bus packages of routes with an average contract period of seven years. Bus assets are now owned by the government. Fare revenue collected is retained by LTA and service fees are regulated based on changes in wage levels, inflation and fuel cost.
Fig 31: How BCM works Fig 32: Fees structure of BCM
LTA Fixed fee + LTA rolls out bus route Bus operators will bid Fare revenue Performance bonus packages for tender for the packages
Bus assets are owned by the government. This lowers Riders Bus the barriers to entry for bus operators, allowing more Operators competition market.
Source: LTA, Maybank Kim Eng Source: LTA, Maybank Kim Eng
Under this BCM framework, bus profitability and cash flows have improved over the years. Also, cashflow is less volatile as it’s not affected by changes in ridership numbers while capex is the responsibility of the government.
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Fig 33: Improved cashflow since 2016
SGD 'm 250 Pre-BCM Post-BCM
200
150
100
50
0 2011 2012 2013 2014 2015 2016 2017 2018 2019
Operating cashflow before WC
Source: Company data
Meanwhile, CDG invested SGD479m in 2018, primarily in Australia’s bus industry, which operates under a similar BCM framework. This should further improve the defensiveness of CDG’s cashflow.
Fig 34: Acquisitions since 2014 Australia Cost (SGD 'm) Company BCM like? 05-Aug-14 30.8 Blue Mountain Bus Company Yes 12-Dec-14 0.488 Phillip Boyle & Associates N/A 21-Dec-16 196 ComfortDelGro Cabcharge Pty Ltd - 07-Feb-18 25.00 New Adventure Travel Yes 09-Apr-18 30.20 Non-emergency patient transport services - 12-Apr-18 32.70 Tullamarine Bus Lines Yes 02-Jul-18 0.94 Western Sydney Repair Centre - 07-Aug-18 111.10 FCL Yes 07-Aug-18 15.60 FCL (Bus depots) - 05-Nov-18 165.00 Buslink Pty Ltd and Buslink Southern Pt Yes 05-Nov-18 22.30 Buslink Pty Ltd and Buslink Southern Pt (Bus depots) - 23-Apr-19 27.50 B&E Blanch Pty Ltd Yes UK Cost (SGD 'm) Company BCM like? 05-Feb-18 14.98 CityFleet Networks Limited - 19-Apr-18 2.20 Assets of Dial-a-Cab - 10-Mar-20 12.50 Argyle Satellite Ltd and Argyle Satellite Contract Services Ltd - China Cost (SGD 'm) Company BCM like? 28-Jun-17 14 Shenyang Tian Wen Taxi Co - Singapore Cost (SGD 'm) Company BCM like? 08-Feb-18 22.90 CDG Insurance Brokers - 10-Apr-18 10.25 AZ Bus Yes 25-Jul-20 6.50 Ric-Tat Yes
Source: Company data, Maybank Kim Eng
On the other hand, railway operations do not fall under BCM framework and are susceptible to volatility in fares and ridership. Its DTL operations have been suffering from LTA’s lower than expected average daily ridership of 500,000 (and 700,000 gradually over time). That said, the recent new Thomson East Line (TEL) was tendered out under BCM to rival SMRT. Future rail line operations that CDG potentially bids for may also be subject to BCM’s defensive earnings framework.
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4.2 Taxi services: drivers back in market; PHC shifting its battle elsewhere
CDG is Singapore’s largest taxi operator. Its Comfort and CityCab brands operate over 10,700 taxis as at end-2019, translating to 58% fleet market share, far ahead of the second and third largest players with 16% and 13% market share respectively. CDG purchases vehicles and rents them out to self-employed taxi drivers.
Fig 35: Taxi fleet market shares: CDG remains a clear market leader
Source: LTA
Competition was intense in 2016 with the rise of ride-hailing players like Uber and Grab, resulting in total fleet numbers in the industry declining by 8% CAGR over 2015-2019.
Fig 36: Total taxi fleet in Singapore Taxi fleet in market ('000) 30
-8% CAGR 25
20
15
10
5
0 2015 2016 2017 2018 2019
Source: Company data, Maybank Kim Eng
That said, indicative of the industry attrition was the number of taxi driver vocational licences (TDVL), which fell in 2017, but gradually recovered in 2018 and 2019 at a CAGR of 2%. This suggests taxi drivers are returning to the market.
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Fig 37: The number of Taxi Driver Vocational Licence (TDVL) holders recovered since heightened PHC competition in 2016
Total valid TDVL holders ('ooo) 102 101 100 2% CAGR 99 98 97 96 95 94 93 2015 2016 2017 2018 2019
Total valid TDVL holders ('000)
Source: Company data,
Indonesia-based ride-hailing Gojek has entered Singapore since Jan 2019, presenting new risks to the taxi industry. However, ride-hailing players like Grab and Gojek have been reducing their emphasis on price competition and shifting their focus towards services beyond transport, such as food delivery, digital payments, logistics and business-partner solutions.
4.3 Higher-margin support services
CDG offers services that support its core land-transport businesses. It includes automotive engineering, vehicle inspection, car-rental and bus- station operations. These services made up 9% of CDG’s 2019 revenue.
Fig 38: Revenue breakdown by business segments
% 100 11 10 11 10 9 90 17 80 22 19 33 70 32 60 50 40 74 67 71 30 57 57 20 10 0 2015 2016 2017 2018 2019 Public Transport (BCM) Taxi Others
Source: Company data
However, the segment contributed a much higher EBIT margin of 24% than the rest of the segments. That said it is unlikely that the support services will grow going forward.
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Fig 39: EBIT margin breakdown by business segments
% 30
25
20
15
10
5
0 2013 2014 2015 2016 2017 2018 2019
Public transport services (Bus + Rail) Taxi Others Overall
Source: Company data
4.4 Overseas expansion: contributing bigger pie
CDG began its overseas expansion soon after its listing in 2003. Since then, the UK, Ireland and Australia have become its largest revenue and EBIT contributors outside of Singapore. 2018 marked one of its biggest acquisition years, with management executing SGD479m of purchases, mostly to tap bus opportunities operating under a BCM-like model in Australia. Management continues to evaluate investments in developed countries that operate under contracting models.
Fig 40: Geographical revenue breakdown % 100 6 6 6 5 5 4 4 90 13 10 9 9 12 13 16 80 25 25 23 70 21 24 23 22 60 63 59 60 50 59 59 59 58 40 30 20 10 0 2013 2014 2015 2016 2017 2018 2019
Singapore UK Australia China and others
Source: Company data
EBIT margin is mainly driven by businesses in Singapore and Australia as they contributed 66% and 19% of FY19 EBIT. Going forward, EBIT margin should remain stable as CDG continues to grow its BCM-like businesses overseas.
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Fig 41: Geographical EBIT margin breakdown
% 30
25
20
15
10
5
0 2013 2014 2015 2016 2017 2018 2019
Singapore UK Australia China and others Total
Source: Company data
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5. Valuation
5.1 DCF methodology
Barring earnings volatility this year due to exceptional rental rebates given to taxi drivers, we believe DCF is an appropriate valuation method given the company’s steady and strong cashflow. Cashflow should remain stable as CDG shifts towards more BCM schemes for public transportation, while the taxi business normalises.
We applied a WACC of 8.2%, with debt-to-capital ratio of 0.1x and derived a TP of SGD1.99 assuming a long-term growth of 1%. Our TP implies 2020E/21E P/E of 24.8/17.6x.
Fig 42: DCF valuation 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E EBIT 297 380 391 393 394 395 395 395 395 395 Depreciation 451 440 450 459 467 473 473 470 463 458 WC changes 61 4 (1) (0) (1) (1) 0 1 2 1 Operating cashflow 809 823 841 853 860 867 868 866 860 854 Taxes paid (57) (75) (78) (78) (79) (79) (79) (80) (80) (81) Cashflow from ops 751 748 763 774 782 788 789 786 780 773 Capex (381) (495) (495) (495) (495) (471) (447) (425) (425) (425) Dividends/Interest income 12 18 19 21 21 22 24 26 28 31 Free cashflow 370 253 268 279 286 317 342 361 355 348 Terminal value 4,913 PV of FCF and TV 342 216 211 204 193 198 197 193 175 2400 Total discounted FCF 4330 Add: FY19 net debt (40) Equity value 4290 Equity value/ share 1.99
Source: Company data, Maybank Kim Eng
Fig 43: DCF assumption Cost of equity 8.8% Cost of debt 3.0% Debt/capital ratio 0.1x Tax rate 20% Risk-free rate 2.5% Beta 0.97x Market return 9% Terminal growth 1% WACC 8.2%
Source: Company data, Maybank Kim Eng
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5.2 Below historical P/B valuation
Our TP implies FY21E/22E P/B of 1.2x, which is 2SD away from its long- term historical mean.
Fig 44: Historical vs forward P/B
x 4
3 +2 S.D +1 S.D Average 2 -1 S.D
-2 S.D 1
0 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12 Jan 14 Jan 16 Jan 18 Jan 20
Source: Factset, Maybank Kim Eng
Our TP implies 24.8x 2020E P/E, which is above its three-year historical valuation of 17.5x. However, our implied FY21E P/E drops sharply to 17.6x, which is in line with its five-year historical mean.
We believe five-year historical mean is particularly relevant as it captures the peak period of competition between taxis and private-hire vehicles between 2016 and early 2018, and the market’s eventual consolidation before Gojek’s entry into Singapore, as well as the revenue shift towards higher public transport mix.
Fig 45: Three-year forward P/E Fig 46: Five-year forward P/E
X x 30 30
25 25
20 20
15 15
10 10
5 5 Jan-17 Jan-18 Jan-19 Jan-20 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20
Forward P/E Average +1SD Forward P/E Average +1SD -1SD +2SD -2SD
-1SD +2SD -2SD Source: Factset, Maybank Kim Eng
Source: Factset, Maybank Kim Eng
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6. MKE vs consensus
Fig 47: MKE vs Factset consensus End-Dec, SGD m 2020E 2021E 2022E
Revenue (MKE) 3,606 3,834 3,882
EBITDA (MKE) 748 820 841
EBIT (MKE) 297 380 391
Net Profit (MKE) 174 245 254
Revenue (Consensus) 3,790 3,907 3,982
EBITDA (Consensus) 759 834 851
EBIT (Consensus) 356 420 433
Net Profit (Consensus) 229 279 289 Revenue (MKE/consensus) -4% -2% -2% EBITDA (MKE/consensus) 1% -1% -1% EBIT (MKE/consensus) -11% -9% -9% Net Profit (MKE/consensus) -17% -11% -8%
Source: Factset, Maybank Kim Eng
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7. Opportunities, risks and sensitivity analysis
Growth opportunities could come from: 1) future earnings-accretive overseas acquisitions; 2) new BCM Singapore railway contracts; and 3) conversion of the existing railway operating model to BCM structure. We have yet to factor in any new acquisitions, and neither has consensus.
Every 10% decrease in passenger would reduce our core profit by only 1% and TP by 1%.
Fig 48: EPS sensitivity to decline in train passengers FY20E EPS growth TP Base case - 30% -34% 1.99 40% decline -35% 1.97 50% decline -36% 1.96 60% decline -37% 1.94
Source: Maybank Kim Eng
For the taxi business, we assume a 25% decline in revenue in 2020E. A further 10% reduction in taxi revenues would reduce our core profit by 1% for FY20E and TP by 3%.
Fig 49: EPS sensitivity to taxi revenue FY20E EPS TP Base case - 25% -34% 1.99 35% decline -35% 1.93 45% decline -36% 1.88 55% decline -37% 1.82
Source: Maybank Kim Eng
Currently, we conservatively assume a payout ratio of 60% for FY20E/21E.
Fig 50: Dividend yield scenario analysis DPS Dividend Yield Dividend payout ratio FY20E FY21E FY20E FY21E 80% 0.064 0.090 4.4% 6.2% 70% 0.056 0.079 3.8% 5.4% Base case - 60% payout ratio 0.048 0.067 3.3% 4.6% 50% 0.040 0.056 2.7% 3.9%
Source: Maybank Kim Eng
We assume a 5.2% decline in operating expenses on the back of the government’s enhanced wage credit subsidy for Singaporean/ PR employees. A further 1% decline in operating costs would increase EPS by 9% and our TP by 0.5%.
Fig 51: Operating expenses - sensitivity to EPS FY20E EPS TP Base Case- 5.2% decline -34% 1.99 6% decline -26% 2.00 7% decline -15% 2.01 8% decline -5% 2.02
Source: Maybank Kim Eng
Our WACC is 8.2% with debt-to-capital ratio of 0.1x. Our TP sensitivity suggests premium-to-average historical valuations if CDG gears up or where long-term growth is greater than 1%, unless new investments can contribute substantially to earnings.
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Fig 52: TP sensitivity to WACC and long-term growth
7.5% 8.0% 8.2% 8.5% 9.0% 2.0% 2.44 2.23 2.17 2.06 1.91 1.5% 2.31 2.13 2.08 1.97 1.84 1.0% 2.20 2.04 1.99 1.90 1.78 0.5% 2.11 1.96 1.92 1.84 1.72 0.0% 2.03 1.90 1.86 1.78 1.67
Source: Maybank Kim Eng
If CDG eventually uses up its entire SGD1b dry powder to acquire businesses overseas at the end of 10 years, additional EBIT could be added to our base case (no acquisition) terminal value. The key assumption is based on investment profile and returns similar to FY19 ROA and EBIT of its existing overseas businesses.
Fig 53: Additional EBIT to DCF model and changes to terminal value Additional EBIT New Terminal Value FY19 ROA (SGD ‘m) (SGD’m)
UK/Ireland 13.7% 137 6,847
Australia 3.5% 35 5,405
China 6.8% 68 5,869
Source: Company data, Maybank Kim Eng
As a result, TP could be raised as follows:
Fig 54: Change in TP assuming CDG uses up its entire warchest
TP (SGD) 3.00 25%
2.40 2.50 20% 2.19 2.10 2.00 2.00 15%
1.50
10% 1.00
5% 0.50
0.00 0% Base Case UK/Ireland China Australia Base Earnings accretion Changes to TP
Source: Company data, Maybank Kim Eng
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FYE 1 Dec FY18A FY19A FY20E FY21E FY22E Key Metrics P/E (reported) (x) 15.7 20.0 18.1 12.9 12.4 Core P/E (x) 15.0 19.5 18.2 13.0 12.5 P/BV (x) 1.7 2.0 1.2 1.2 1.1 P/NTA (x) 2.6 3.0 1.8 1.7 1.6 Net dividend yield (%) 5.0 4.1 3.3 4.6 6.4 FCF yield (%) 8.5 4.0 11.7 8.0 8.5 EV/EBITDA (x) 5.9 6.5 4.5 4.0 3.9 EV/EBIT (x) 11.2 13.5 11.3 8.7 8.3
INCOME STATEMENT (SGD m) Revenue 3,805.2 3,905.7 3,606.3 3,833.9 3,882.1 Gross profit 833.1 868.8 748.0 819.7 841.5 EBITDA 833.1 868.8 748.0 819.7 841.5 Depreciation (394.3) (453.0) (450.6) (439.8) (450.5) EBIT 438.8 415.8 297.3 379.9 391.0 Net interest income /(exp) 0.4 (9.2) (10.3) (4.8) (2.9) Associates & JV 0.1 0.0 0.0 0.0 0.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 Other pretax income 0.0 0.0 0.0 0.0 0.0 Pretax profit 439.3 406.6 287.0 375.1 388.1 Income tax (80.5) (88.4) (57.4) (75.0) (77.6) Minorities (55.5) (53.1) (55.3) (55.6) (56.1) Reported net profit 303.3 265.1 174.3 244.5 254.4 Core net profit 303.3 265.1 174.3 244.5 254.4
BALANCE SHEET (SGD m) Cash & Short Term Investments 586.1 594.2 878.5 972.6 1,034.3 Accounts receivable 552.4 574.2 520.1 553.0 559.9 Inventory 138.7 150.7 136.2 143.6 144.9 Reinsurance assets 0.0 0.0 0.0 0.0 0.0 Property, Plant & Equip (net) 2,691.3 2,706.1 2,522.1 2,584.5 2,636.2 Intangible assets 896.4 848.7 841.9 835.2 828.5 Investment in Associates & JVs 0.9 0.7 0.7 0.7 0.7 Other assets 270.9 504.4 504.4 504.4 504.4 Total assets 5,136.7 5,379.0 5,404.0 5,594.0 5,708.9 ST interest bearing debt 90.4 227.0 227.0 227.0 227.0 Accounts payable 898.9 813.6 805.9 849.9 857.3 Insurance contract liabilities 0.0 0.0 0.0 0.0 0.0 LT interest bearing debt 479.5 407.2 407.2 407.2 407.2 Other liabilities 641.0 922.0 922.0 922.0 922.0 Total Liabilities 2,109.6 2,370.0 2,362.3 2,406.3 2,413.7 Shareholders Equity 2,613.6 2,595.0 2,602.8 2,723.8 2,806.1 Minority Interest 413.5 414.0 438.9 463.9 489.1 Total shareholder equity 3,027.1 3,009.0 3,041.6 3,187.7 3,295.2 Perpetual securities 0.0 0.0 1.0 1.0 1.0 Total liabilities and equity 5,136.7 5,379.0 5,404.0 5,594.0 5,708.9
CASH FLOW (SGD m) Pretax profit 439.3 406.6 287.0 375.1 388.1 Depreciation & amortisation 394.3 453.0 450.6 439.8 450.5 Adj net interest (income)/exp (0.4) 9.2 10.3 4.8 2.9 Change in working capital (55.0) (144.0) 60.9 3.7 (0.8) Cash taxes paid (82.1) (89.5) (57.4) (75.0) (77.6) Other operating cash flow 0.0 0.0 0.0 0.0 0.0 Cash flow from operations 713.0 670.3 751.5 748.4 763.1 Capex (325.0) (466.3) (381.2) (495.5) (495.5) Free cash flow 388.0 204.0 370.3 252.9 267.6 Dividends paid (225.1) (230.7) (166.6) (123.5) (172.1) Equity raised / (purchased) 2.6 1.0 0.0 0.0 0.0 Change in Debt 215.5 3.7 0.0 0.0 0.0 Other invest/financing cash flow (378.4) 44.7 (35.7) (30.3) (28.8) Effect of exch rate changes (12.0) (5.5) 0.0 0.0 0.0 Net cash flow 1.6 19.7 163.0 94.1 61.7
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FYE 1 Dec FY18A FY19A FY20E FY21E FY22E Key Ratios Growth ratios (%) Revenue growth 6.4 2.6 (7.7) 6.3 1.3 EBITDA growth 1.8 4.3 (13.9) 9.6 2.7 EBIT growth 7.2 (5.2) (28.5) 27.8 2.9 Pretax growth 3.3 (7.4) (29.4) 30.7 3.5 Reported net profit growth 0.6 (12.6) (34.2) 40.3 4.0 Core net profit growth 0.6 (12.6) (34.2) 40.3 4.0
Profitability ratios (%) EBITDA margin 21.9 22.2 20.7 21.4 21.7 EBIT margin 11.5 10.6 8.2 9.9 10.1 Pretax profit margin 11.5 10.4 8.0 9.8 10.0 Payout ratio 74.6 79.9 59.8 59.8 79.7
DuPont analysis Net profit margin (%) 8.0 6.8 4.8 6.4 6.6 Revenue/Assets (x) 0.7 0.7 0.7 0.7 0.7 Assets/Equity (x) 2.0 2.1 2.1 2.1 2.0 ROAE (%) 11.6 10.2 6.7 9.2 9.2 ROAA (%) 6.1 5.0 3.2 4.4 4.5
Liquidity & Efficiency Cash conversion cycle (41.0) (32.4) (29.3) (31.8) (32.4) Days receivable outstanding 47.2 51.9 54.6 50.4 51.6 Days inventory outstanding 15.3 17.2 18.1 16.7 17.1 Days payables outstanding 103.5 101.5 102.0 98.9 101.1 Dividend cover (x) 1.3 1.3 1.7 1.7 1.3 Current ratio (x) 1.3 1.2 1.4 1.4 1.5
Leverage & Expense Analysis Asset/Liability (x) 2.4 2.3 2.3 2.3 2.4 Net gearing (%) (incl perps) net cash 1.3 net cash net cash net cash Net gearing (%) (excl. perps) net cash 1.3 net cash net cash net cash Net interest cover (x) na 45.2 28.9 79.6 132.7 Debt/EBITDA (x) 0.7 0.7 0.8 0.8 0.8 Capex/revenue (%) 8.5 11.9 10.6 12.9 12.8 Net debt/ (net cash) (16.2) 40.0 (244.3) (338.4) (400.1) Source: Company; Maybank
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Research Offices
MACRO REGIONAL EQUITIES SINGAPORE THAILAND
Sadiq CURRIMBHOY Anand PATHMAKANTHAN Thilan WICKRAMASINGHE Head of Research Maria LAPIZ Head of Institutional Research Head of Regional Macro Research Head of Regional Equity Research (65) 6231 5840 [email protected] Dir (66) 2257 0250 | (66) 2658 6300 ext 1399 (65) 6231 5836 (603) 2297 8783 • Banking & Finance - Regional [email protected] [email protected] [email protected] • Consumer • Strategy • Consumer • Materials • Services
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APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES
DISCLAIMERS This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluct uate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ fr om fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of this report by MKE and it should not be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees (collectively, “Representatives” ) shall not be liable for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward-looking statements. MKE expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events. MKE and its officers, directors and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law, from time to time participate or invest in financing transactions with the issuer(s) of the securities mentioned in this report, perform services for or solic it business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In a ddition, it may make markets in the securities mentioned in the material presented in this report. One or more directors, officers and/or employees of MKE may be a director of the issuers of the securities mentioned in this report to the extent permitted by law. This report is prepared for the use of MKE’s clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of MKE and MKE and its Representatives accepts no liability whatsoever for t he actions of third parties in this respect. This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in a ny locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. With out prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply based on geographical location of the person or entity receiving this repor t. Malaysia Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Singapore This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Rese arch Pte. Ltd. (“Maybank KERPL”) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contact Maybank KERPL in Singapore in resp ect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law. Thailand Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of Maybank Kim Eng Securities (Thailand) Public Company Limited. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) accepts no liability whatsoever for the actions of third parties in th is respect. Due to different characteristics, objectives and strategies of institutional and retail investors, the research products of MBKET Institutional and Retail Research departments may differ in either recommendation or target price, or both. MBKET reserves the rights to disseminate MBKET Retail Research reports to institutional investors who have requested to receive it. If you are an authorised recipient, you hereby tacitly acknowledge that the research reports from MBKET Retail Research are first pr oduced in Thai and there is a time lag in the release of the translated English version. The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Of fice of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. MBKET does not confirm nor certify the accuracy of such survey result. The disclosure of the Anti-Corruption Progress Indicators of a listed company on the Stock Exchange of Thailand, which is assessed by Thaipat Institute, is made in order to comply with the policy and sustainable development plan for the listed companies of the Office of the Securities and Exchange Commission. Thaipat Institute made this assessment based on the information received from the listed company, as stipulated in the form for the assessment of Anti-corruption which refers to the Annual Registration Statement (Form 56-1), Annual Report (Form 56-2), or other relevant documents or reports of such listed company. The assessment result is therefore made from the perspective of Thaipat Institute that is a third party. It is not an assessment of operation and is not based on any inside information. Since this assessment is only the assessment result as of the date appearing in the assessment result, it may be changed after that date or when there is any change to the relevant information. Nevertheless, MBKET does not confirm, verify, or certify the accuracy and completeness of the assessment result. US This third-party research report is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a -6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. This report is not directed at you if MKE is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you under relevant legislation and regulations. All U.S. persons receiving and/or accessing this report and wishing to effect transactions in any security mentioned within must do so with: Maybank Kim Eng Securities USA Inc. 400 Park Avenue, 11th Floor, New York, New York 10022, 1-(212) 688-8886 and not with, the issuer of this report.
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UK This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regula ted, by the Financial Conduct Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such li nks is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, a nd that for accurate guidance recipients should consult with their own independent tax advisers. DISCLOSURES
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Disclosure of Interest Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to he rein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies.
Singapore: As of 17 May 2020, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report.
Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.
Hong Kong: As of 17 May 2020, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.
India: As of 17 May 2020, and at the end of the month immediately preceding the date of publication of the research report, KESI, authoring analyst o r their associate / relative does not hold any financial interest or any actual or beneficial ownership in any shares or having any conflict of interest in the subject companies except as otherwise disclosed in the research report. In the past twelve months KESI and authoring analyst or their associate did not receive any compensation or other benefits from the subject companies or third party in connection wit h the research report on any account what so ever except as otherwise disclosed in the research report.
MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.
OTHERS Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report. Reminder Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to soph isticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.
Definition of Ratings Maybank Kim Eng Research uses the following rating system BUY Return is expected to be above 10% in the next 12 months (including dividends) HOLD Return is expected to be between 0% to 10% in the next 12 months (including dividends) SELL Return is expected to be below 0% in the next 12 months (including dividends) Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.
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