Brokers' take

ComfortDelGro | Buy

Target price: S$3.21

July 27 close: S$2.84

OCBC Investment Research, July 27

With the Downtown Line (DTL) still loss-making, we believe it is unlikely LTA will transit Northeast Line (NEL) to New Rail Financing Framework (NRFF) as Comfort is currently using profits from NEL to support the start-up costs incurred to operate DTL 1 and 2. As we expect DTL to only breakeven after DTL 3 starts in FY17, we have assumed that NEL will only transit to NRFF from FY18 onwards.

Post transition to GCM, Comfort will become fully asset-light for both bus and rail operations in Singapore, which also improves its FCF outlook ahead. With the expected change to asset-light operating models (both rail and bus) and improved FCF outlook, we also change our valuation method from DDM-based to DCF-based (cost of equity: 6.9 per cent, terminal growth: 1.0 per cent) to better reflect CDG's value. On lower earnings forecasts but partially offset by higher FCF ahead, our FV drops from S$3…