Hitting a speed bump
3Q22 PATMI below; trimming FY22-24E EPS and TP
CDG’s 3Q22 PATMI of SGD34.3m (+32.9% YoY; -18.3% QoQ) came in below our and street expectation with 9M22 earnings of SGD153m forming around 71% of MIBG/consensus full-year estimates. We attribute the miss entirely to the group’s public transport services, especially its overseas operations,
given the elevated costs and forex headwinds. We trim FY22-24E EPS by 15% and lower our DCF-based TP to SGD1.60 (WACC: 8.3%, LTG: 1%). Retain Buy as CDG’s balance sheet remains solid with net cash of SGD647m (or SGD0.30/share), underpinned by its strong FCF.
Overseas operations face near-term challenges
Revenue for Public Transport Services rose by 8.7% YoY to SGD772.5m in 3Q22 (flattish QoQ) as higher turnover from improving ridership and fuel indexation were mostly offset by FX impacts in Australia and UK. But core operating profit of SGD22.5m (2Q22: SGD38.6m; 1Q22: SGD37.9m) was off the mark against the backdrop of inflationary cost pressures. Management claimed the margin pressure was due to driver shortage across all operating geographies, and the time lag to pass on higher costs (its public bus service fees only see indexation from wage and CPI on an annual basis).
Taxis and private hire vehicles remain a bright spot
On a positive note, 3Q22 taxi revenue of SGD112.3m (+15.4% YoY; +7% QoQ) benefitted from lower rental discounts compared to last year, higher call volumes (+c.50% YoY) and newly introduced commissions for booking via its mobile app. Meanwhile, car rental & leasing continues to see sequential growth on the back of increased fleet. While there are still some reliefs granted in China in response to new outbreaks, we expect this targeted scheme to gradually taper off as the country looks more likely to further fine-tune its dynamic zero Covid policy in 2023.
3 Sydney bus contracts to contribute positively
Its indirect subsidiary, CDC NSW, recently clinched three metropolitan bus contracts in Sydney totalling some AUD1.7b. The contracts are Greater Sydney Bus Contracts for Region 4 and Region 14, which CDG currently operates, and for Region 12, which is now being run by another operator and will be consolidated into Contract Region 14. The new Region 4 contract will start in Apr 2023 and run for eight years while the new Region 14 contract will commence in May 2023 and run for seven years. We estimate EBIT contribution of about SGD12m on a full-year basis.
