Complacency in this rally; Downgrade to SELL
- Lofty valuation has reflected positives from bus transition.
- Market is complacent on three fronts: 1) threats to taxi business; 2) sale of bus assets not a given; 3) weakening AUD.
- D/G to contrarian SELL from HOLD, cut TP to SGD2.70 (17x FY16E PER) from SGD2.90.
Upside priced in…
- Trading at a lofty 23x PER and 2.8% yield, we believe CDG has priced in upside from the impending transition at its Singapore bus business.
- It is also trading at a hefty 60% premium to the market (vs 3% premium since end-2008).
- CDG’s stub value (stripping out SBST and VICOM) has also surged despite no material positives for the rest of its business. It even outperformed SBST since end-2013.
…and market is complacent on three fronts:
- We believe the market is complacent on three fronts.
- Threats to the taxi business (31% of sales, 34% of EBIT).
We expect the growing presence of Uber to pose a structural threat to its taxi business. Regulators in Singapore appear to be adopting a lighttouch and we expect taxi rentals to be under pressure. - Sale of its bus assets to the government is logical, but it is not a given.
Market expects a potential windfall from the sale of its bus assets but this is not a done deal. While it is logical for the government to buy its bus assets, it has never announced a decision on this. A leaseback is still possible. The government will be cautious not to be seen as giving private entities a large handout, especially with the General Elections looming. - Impact of weakening AUD (10% of sales, 16% of EBIT).
The AUD has already depreciated by c.7% on average from last year (SGD/AUD: YTD15 - 1.06 vs 2014 average- 1.14) and our Maybank FX Research team expects this weakness to be sustained with 1Q16 forecast of 1.03.
Downside risks. Lowering TP to SGD2.70. D/G SELL
- We lower our FY15-17E EPS by 0.9%/4.7%/7.4% and roll forward to 17x FY16E EPS (0.5SD above its 10-year average).
- We lower our TP to SGD2.70 (from SGD2.90) and downgrade to SELL from HOLD.
(Derrick Heng)
Source: http://www.maybank-ke.com.sg
