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Idea Of The Week: ComfortDelGro & DBS
ComfortDelGro Corporation
Earlier last week, ComfortDelGro Corporation (CDG) announced its A$22 million acquisition of five metropolitan bus routes and a fleet of 42 vehicles in Australia through its subsidiary CDC Victoria. The bus routes and vehicles were previously owned and operated by Driver’s Group in Melbourne’s Eastern Suburbs. Reporting on the acquisition, OSK Research commented that the acquisition offers good value to CDG as the purchase was made at a discount to CDG’s own valuation. They reiterated their “Buy” call as they remain positive on the growth potential of CDG’s overseas businesses, which make up 46 percent of operating profit and fetch higher operating margins of 13.2 percent (versus 10 percent for Singapore).
Later in the same week, CDG’s major shareholder, Singapore Labour Foundation (SLF), sold 8 percent of its stake in CDG through a private placement, thereby reducing its interest in CDG from 12 percent to 4 percent. According to UOB Kay Hian, CDG’s shares were sold at about $1.94 – $2.02, a 7 – 11 percent discount to the last traded price of $2.18 on the day of announcement. After the news hit the street, CDG’s share price fell by 13 percent below its original market price. Based on CIMB’s research report, they maintained their “Buy” call as they think the pullback was overdone and the shares may rebound in the near term, in view of:
CDG’s unchanged fundamentals with defensive earnings;
3% dividend yield support; and
the absence of dilution from the placement, which involves only vendor shares.
ComfortDelGro have an average upside of 12.1 percent based on the estimate price of 5 analysts from CIMB, DBS Vickers, UOB Kay Hian, OCBC and OSK.
Source: FactSet, ComfortDelGro 1-Month Price Chart
DBS Group Holdings
DBS Group Holdings (DBS) was finally given the green light from Bank Indonesia to purchase a 40 percent stake in Bank Danamon from Temasek with the option to eventually increase this. Maybank Kim Eng kept a “Buy” call to DBS as they see little near-term impact to the group’s financials from this deal. Commenting further, they estimate a neutral impact (-1 percent) to group FY14 Earnings per share (EPS) from the deal, and a mild dilution in Returns on equity (ROE) from 11.3 percent to 10.9 percent. Maybank Kim Eng gave a Target Price of $20 for the “Buy” call which translates to an upside of 19.2 percent while the average of 4 analysts will have a potential upside of 13.6 percent.
Source: FactSet, DBS 1-Month Price Chart
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