ComfortDelgro still buoyed by strong overseas growth potential

Don't count out a possible rebound.

ComfortDelgro continues to be a great stock pick due to its strong fundamentals, particularly supported by robust overseas growth prospects and positives from a likely fare increase, according to OCBC Investment Research.

Here's the complete company analysis from OCBC:

Share price stabilising since stake sale. ComfortDelgro’s (CDG) is showing signs of stabilising after the partial stake sale by the Singapore Labour Foundation about a month ago (at its lowest, CDG fell by more than 20% from when the sale was completed). At this juncture, we believe that it is a good opportunity to pick-up a high-quality counter on the cheap and, potentially, on the rebound.

Fundamentals unchanged. Domestic challenges aside, the group’s overseas growth prospects, which have been its key growth driver, remain unchanged. As a recap, CDG recently made an acquisition for its UK operations that expanded its fleet size by 41% - along with additional service routes – and increased its market share to joint-second in the city. (This deal should become income accretive beyond FY13). In addition, CDG is in the process of tendering for additional bus routes in New South Wales (Australia) – as well as re-submitting its bid for its existing routes - and we are hopeful for positive results come Jul this year. More importantly, its UK and Australian bus segments are operated on a cost-plus model, which significantly limits its downside risks.

Positives from fare review delay. Although the Fare Review Mechanism Committee (FRMC) announced earlier in the month that it has delayed the submission of its findings by a few months, the likely outcome of a fare increase remains on track, in our view. Furthermore, the delay should be viewed as a strong political will to devise a fare review structure that will be sustainable and more beneficial to the public transport operators in the long-run, rather than a oneoff fare increase to paper current deficiencies.

Time to accumulate. Given its recent share stability and unchanged fundamentals, we upgrade CDG to BUY with an unchanged fair value estimate of S$1.95.

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