Report Date: October 29, 2024
Broker: UOB Kay Hian Private Limited
Company Overview
ComfortDelGro Corporation Limited (CD SP) is a major player in the land transportation industry. It provides a broad range of services, including bus, taxi, rail, car rental and leasing, automotive engineering services, inspection and testing, driving center management, insurance broking, and outdoor advertising. Listed under the industrial sector, ComfortDelGro’s shares are traded under the Bloomberg ticker CD SP.
Stock and Market Data
- Share Price: S$1.46
- Target Price: S$1.56, implying a potential upside of 6.9%
- Market Capitalization: S$3,162.5 million (US$2,391.7 million)
- Shares Issued: 2,166.1 million
- 52-Week Price Range: S$1.53 (high) / S$1.28 (low)
- Dividend Yield: 4.9% (forecasted for 2024)
Key Developments and Strategic Moves
3Q24 Results Preview: Stable Growth Expected
- Rail Ridership Growth: Domestic rail ridership increased by 1.9% year-over-year in September 2024, attributed to the return of office work mandates in Singapore. This growth trend is expected to continue into the fourth quarter, benefiting ComfortDelGro’s public transport division.
- Taxi Segment Expansion: The company recently acquired a leading premium taxi provider in London, Addison Lee, for £269.1 million (approximately S$461.2 million). This acquisition, set to complete by November 7, 2024, will add 7,500 drivers and 5,000 vehicles to ComfortDelGro’s fleet in the UK. The company anticipates an increase of S$10-12 million in annual net profit post-acquisition.
Operational Highlights
Public Transport Division
- Domestic Operations: Increased ridership from work-from-office policies is expected to support growth in rail profitability.
- UK Operations: Margins for the UK bus chartering business are forecasted to improve as contract renewals continue, with potential margin growth into the high single digits to low teens over the medium term.
Taxi Division
- Market Positioning: ComfortDelGro faces competition from local ride-hailing services, which has impacted completed bookings. Despite this, the taxi division continues to grow due to commission rate hikes and strategic acquisitions, such as the recent acquisition of A2B in Australia. Year-over-year growth in operating profit is projected at 33% for 3Q24, with around 12% growth excluding contributions from recent acquisitions.
Upcoming Catalysts and Financial Impact
Handover of Jurong-West Bus Operations
ComfortDelGro’s subsidiary, SBS Transit, lost the Jurong-West bus contract in August 2023 and completed the handover in September 2024. This handover resulted in an estimated S$2 million net profit loss for 3Q24.
Fare Hike for Public Transport Services
An upcoming fare increase, approved by Singapore’s Public Transport Council, will take effect in December 2024, expected to boost SBS Transit’s annual revenue by S$17.3 million. This fare hike is anticipated to contribute an additional S$9-10 million to ComfortDelGro’s net profit in 2024.
Financial Performance and Forecasts
Key Financial Metrics (S$ million)
- 2024 Net Turnover: Projected at 4,124.3 (6.3% growth from 2023)
- 2024 EBITDA: Forecasted at 651.5
- 2025 Net Profit Forecast: 262.5 (27.2% growth from 2024)
- EPS Growth: 18.5% in 2024, projected 20.4% in 2025
- Return on Equity: Expected to improve from 7.9% in 2024 to 9.8% in 2025
ComfortDelGro’s net debt-to-equity ratio is forecasted to remain low at -19.2% for 2024, highlighting its strong balance sheet and financial stability.
Strategic Outlook and Recommendations
Valuation and Stock Recommendation
UOB Kay Hian maintains a “Hold” recommendation for ComfortDelGro, with a target price of S$1.56. Although the company offers an attractive dividend yield of 4.9%, limited near-term catalysts suggest a conservative outlook, with minimal upside at current valuation levels.
Share Price Catalysts
Key factors that could drive ComfortDelGro’s stock performance include:
- Winning new bus contracts
- Further increases in taxi commission rates
- Earnings-accretive acquisitions in international markets
This comprehensive report indicates ComfortDelGro’s continued focus on international expansion and strategic investments to drive long-term growth.
