Here's why ComfortDelgro will revel in profit in 2H12

The 7.7% profit surge to S$118.5m will likely be repeated, thanks to ridership increases.

According to OCBC, ComfortDelgro Corporation Limited’s (CD) 1H12 results threw up no surprises with top and bottom-lines forming 49% and 50% of our FY12 estimates respectively. Revenue grew 5.7% YoY to S$1.7b on the back of broad-based growth across all but one segment and better overseas performance while PATMI climbed higher by 7.7% YoY to S$118.5m despite increases in operating expenses (+5.8% YoY; S$1.5b) following higher headcount and fuel consumption. 

Here's more from OCBC:

CD’s taxi segment remained the key driver for the group (1H12 revenue/operating profit contribution of 31.6%/34.5% vs. 48.1%/33.7% for bus). In addition, growth from its Australian bus segments (1H12 operating profit +19% YoY to S$42.6m) – as a result of additional services operated – helped to negate the weaker SG bus performance. Australia now accounts for approximately 63% of CD’s bus operating profits with only a 27% revenue share as compared to SG operations’ 38% revenue contribution and meagre 6.7% of operating profit share.

We do not expect any surprises for CD in 2H12. Revenue will continue to experience broad-based YoY growth in 2H12 following increases in bus/rail ridership in Singapore, operations of additional bus routes in Australia and higher cashless transactions from the taxi segment while operating expenses will rise in a controlled manner through effective management (most of CD’s fuel and electricity needs have been hedged into 2013 and anticipated headcount increases will be minimal).

While we agree that CD is a strong and stable company and that its strength and attractiveness lie in 1) CD’s qualities as a defensive play and 2) its consistent dividend paying theme, we deem that current valuations are a reflection of the market’s desire for safe and stable yields especially given the uncertain global economic climate. As our current valuation method is based on a dividend-discount model, and CD has consistently paid dividends of around 50- 53% of its PATMI over the past four years, we feel that our conservative payout assumptions of 50% of PATMI is justified. Noting CD’s in line results, we leave our earnings estimates unchanged.