• S$1.022bn revenue missed consensus expectations of S$1.065bn by 4.0%; but in line with our expectations of S$1.046bn
• S$85.2mn PATMI in line with consensus expectations of S$87.3mn; but missed our expectations of S$89.0mn by 4.3%
• 25 cents interim dividend, unchanged from 2QFY15

• Bus: Effect on SBST to be positive, but do not expect massive special dividends

We expect profitability for SBS Transit (SBST), 75%-owned subsidiary of ComfortDelGro (CD), to be more stable going forward, in view of the structure of the contracting model. Consequently, we also expect cash flow for SBST to improve. However, we do not expect massive special dividends to be paid out, in view that SBST has only S$4.7mn cash on its balance sheet, but S$8.0mn short-term bank loan payable,  S$150mn Medium Term Note (MTN) due in September 2017 and S$100mn bank loan due in 2018.

• Taxi: Absence of hiring queue could be the canary in a coal mine

While Management guided that taxi hire-out rate is effectively 100% (save for the spares), it was also disclosed that the queue for hirers is now absent. Going forward, we think that CD would be more judicious in managing taxi fleet expansion. We are expecting slower growth for the segment and a plateau in profits.

• Rail: DTL remains unprofitable; other uncertainty is NEL’s transition to NRFF

Average daily ridership on Downtown Line (DTL) grew 205% yoy to 212,000 passenger trips, following the commencement of revenue service of DTL2. Rail profits shrank 95% qoq to S$0.2mn, leading us to believe that DTL remains unprofitable. Higher staff costs from the build-up of staff for DTL3 contributed to the higher operating costs, which led to the lower profits. We think that DTL will be able to breakeven only after the full line becomes operational. The other piece of the puzzle is the transition of North-East Line (NEL) to the New Rail Financing Framework (NRFF). Negotiations are ongoing.

Downgrade to “Accumulate” rating with unchanged target price of S$3.21

We downgrading CD to “Accumulate” as the price has appreciated 7% after we upgraded to “Buy”, following the post-Brexit sell-down. Our target price of S$3.21 represents an implied 22.9x FY16e forward P/E multiple.