SINGAPORE (Feb 8): ComfortDelGro, the world’s second largest listed passenger land transport company, is announcing its 4Q18 results ended Dec on Feb 13.

UOB KayHian expects the transport operator to see a 5% y-o-y fall in FY18 revenue of $3.8 billion and a 4% y-o-y rise in core PATMI of $300 million, implying a core PATMI margin of 7.9%.

A sharper-than-expected decline in the taxi fleet has led to a downward revision to UOB’s FY18 estimates. Offsetting the decline are maiden contributions from the Bukit Merah bus contract and contributions from overseas acquisitions.

“In 2019, earnings growth will be driven by overseas acquisitions,” says UOB analyst Foo Zhiwei in a Friday report, “Maintain ‘buy’ with an unchanged target price of $2.59” or

For 4Q18, the house expects revenue of $994 million (+3% q-o-q) on core PATMI of $78 million (-3% q-o-q), implying core PATMI margin of 7.8% (3Q18: 8.2%, 4Q17: 5.4%).

ComfortDelGro closed FY18 with a taxi fleet of 12,360 taxis (-6.7% y-o-y), representing a larger drop versus UOB’s expectation of a 2% y-o-y decline.

“Further taking into account the seasonal weakness in 4Q, we have adjusted our numbers accordingly, lowering our 2018 taxi EBIT expectation to $126 million (-7% y-o-y), thereby implying a 4Q18 EBIT of $30 million (+19% y-o-y),” says Foo.

The Bukit Merah bus contract kicked off in 4Q18, and is expected to add $24 million in revenue to the public transport segment. However, EBIT margins are expected to be lower relative to that under the Seletar contract due to a lower bid, and this is likely to be a drag.

However, the drag is expected to be partially offset by full-quarter contributions from ComfortDelGro’s recent overseas acquisitions, which add 0.1-0.2ppt to EBIT margins.

“All in all, we expect the public transport segment to report a 4Q18 revenue of $720 million (+12% y-o-y) and EBIT of $58 million (+32% y-o-y),” says Foo.

UOB expects a final dividend of 6.1 cents to be declared. This brings ComfortDelGro total dividend payout to 10.45 cents, implying a dividend payout ratio of 75-76%.

In the past 12 months, ComfortDelGro shares are up 14.8% to trade at $2.33 or 14.7 times FY20F earnings.