Brokers' take

ComfortDelgro | Buy Target price: S$3.21 Aug 15 close: S$2.89 OCBC Research, Aug 15

ComfortDelgro (CDG) 2Q16 revenue fell 1.4 per cent y-o-y to S$1.02 billion due mainly to a negative S$18 million foreign currency translation effect. If not for that, revenue would have grown 0.3 per cent, driven by rail (+24.5 per cent) and taxi (+2.8 per cent) segments, but partially offset by bus (-4.6 per cent) segment. 2Q16 Patmi grew 5.3 per cent y-o-y to S$85.2 million.

Under the new bus government contracting model (GCM), LTA will buy bus assets from CDG at net book value, with payments based on the depreciation of the buses over their statutory lifespan of 17 years. We understand from management average fleet age is about six years, which implies an average remaining useful life of 11 years. In our view, the key benefit post-GCM is the improved free cashflow of CDG, as non-cash depreciation charge becomes a positive cash inflow as payment for the buses.