Comprehensive Analysis of ComfortDelGro (CD SP) by Maybank Research
Date: February 28, 2025
Broker: Maybank Research Pte Ltd
Introduction
ComfortDelGro (CD SP) has recently reported its 4Q24 results, which were in line with expectations, prompting Maybank Research to upgrade its rating to BUY with a revised target price (TP) of SGD1.64. This report delves into the company’s financial performance, operational insights, and future outlook.
Financial Performance and Key Metrics
In 4Q24, ComfortDelGro recorded a core PATMI of SGD57.1 million, reflecting a 15.8% year-on-year increase and a 2.3% quarter-on-quarter growth. The company’s full-year earnings reached SGD210.5 million, marking a 16.6% increase from the previous year. A notable highlight was the declaration of a final dividend per share (DPS) of 4.25 cents, bringing the total DPS for FY24 to 7.77 cents, which represents an attractive payout ratio of 80% and a yield of 5.5%.
Public Transport Operations
ComfortDelGro’s public transport segment showed significant improvement with EBIT margins expanding to 4.8% in 4Q24, up from 4.6% in the previous quarter, aided by more favorable margins from UK bus contracts and cost efficiencies from a new electricity contract in Singapore. The company anticipates a slight increase in rail operational revenues, supported by higher ridership and fare adjustments approved by the Public Transport Council effective December 2024.
Furthermore, the company has commenced operations for four new bus franchises in Greater Manchester as of January 2025, while retaining the Seletar bus package at competitive market margins for at least five more years, beginning March 2025.
Taxi and Private Hire Competition
The taxi and private hire segment experienced a robust 34% revenue growth quarter-on-quarter, totaling SGD241 million in 4Q24. However, operating profit only grew by 4% to SGD36 million, partially due to contributions from Addison Lee, which brought in approximately SGD3.9 million from November 7, 2024. The EBIT margin in this segment fell by 4.3 percentage points to 14.9%, primarily due to weaker rental demand in China amid ongoing economic uncertainties. Nevertheless, cost synergies from the A2B acquisition have helped mitigate this impact.
In Singapore, the introduction of a promotional fixed commission of 70 cents per trip for the Zig service has enhanced driver availability and ride supply. However, competition is expected to intensify with the entry of two new ride-hailing players.
Management’s Response to Fraud Allegations
Management has publicly rebutted allegations of fraud in A2B’s taxi operations made by an Australian media group, asserting that these claims are inaccurate and that legal action is being considered. To address potential fraud, A2B has implemented measures such as two-factor authentication for Cabcharge cards and technology to eliminate manual fare pricing, ensuring all payments are processed through the taxi meter. Currently, ComfortDelGro does not foresee any immediate impact from these allegations but will closely monitor any effects on demand.
Valuation and Recommendation
Maybank Research has slightly raised its DCF-based target price to SGD1.64, reflecting an 8.3% WACC and a 0.5% long-term growth rate, as the valuation rolls forward to FY25. With the share price having retraced to an attractive level, the stock has been upgraded to a BUY recommendation, presenting a potential upside of 16% to the new target price.
Company Overview
ComfortDelGro is a prominent land transport conglomerate, with diversified operations that include public transport, taxi services, and bus and rail operations across Singapore, Australia, the UK/Ireland, and China. Singapore remains the most significant contributor to EBIT, accounting for 73%, followed by Australia at 18%, China at 7%, and the UK/Ireland at 2%. Public transport represents the largest EBIT contributor at 44%, bolstered by regulated returns, with taxi and private hire services contributing 39% and other segments 17%.
Future Outlook
The outlook for ComfortDelGro appears positive, with expectations for continued growth in public transport ridership and the potential for further geographical diversification through mergers and acquisitions. The company’s commitment to enhancing operational efficiency and maintaining a robust dividend payout ratio underscores its strategic direction.
Conclusion
In summary, ComfortDelGro is positioned for growth amidst competitive challenges in the taxi and private hire markets. With a significant focus on public transport efficiency and expansion, alongside a strong financial performance, the company remains a compelling investment opportunity as reflected in the recent upgrade to a BUY rating by Maybank Research.
