Introduction

ComfortDelGro Corporation Limited (CD), a leading provider of land transportation services, is bracing itself for a challenging start to 2025. UOB Kay Hian’s latest report offers a detailed exploration of CD’s recent developments, including its financial performance, market dynamics, and key strategic changes. Despite headwinds, the brokerage maintains a “BUY” recommendation for CD, albeit with a revised target price. Below is a comprehensive breakdown of the company’s performance and future outlook.

Company Overview

ComfortDelGro Corporation (CD) operates across a broad spectrum of transportation services, including bus, taxi, rail, car rental, automotive engineering services, inspection and testing, driving centers, insurance broking, and outdoor advertising. As of January 2025, the company has a market capitalization of S\$3,119.2 million (US\$2,277.6 million) and is listed in the industrials sector.

Key Financial Metrics

The financial outlook for CD is mixed as it faces rising costs and increased competition. Here are some notable financial highlights:

• Revenue Growth: CD’s net turnover is expected to grow from S\$3,880.3 million in 2023 to S\$5,326.5 million by 2026.
• Profit Margins: Net profit margins are projected to improve gradually, from 4.7% in 2023 to 5.1% in 2026.
• Net Profit: Adjusted net profit is forecast to rise from S\$174.1 million in 2023 to S\$272.6 million in 2026.
• Dividend Yield: CD offers an attractive dividend yield, increasing from 4.6% in 2023 to 6.5% by 2026.

Challenges in the Ride-Hailing Market

CD has recently raised its platform fees on its taxi booking app, Zig, to offset rising manpower costs due to Singapore’s new Platform Workers Act. The fees have increased from a flat rate of S\$0.70 to a range of S\$1.00 to S\$1.20, depending on distance and travel time. While competitors like Grab and Gojek have also increased fees, UOB Kay Hian anticipates that CD’s online booking volumes may decline further as consumers switch to cheaper public transportation alternatives.

Two new competitors, Geo Lah and Trans-cab Services, have entered Singapore’s ride-hailing market, intensifying competition. The new entrants have been granted one-year provisional licenses, which allows them to fine-tune operations before full licensing. This is expected to compress CD’s taxi margins as drivers are likely to continue operating across multiple platforms.

Bus and Rail Operations

Singapore’s Land Transport Authority (LTA) has put the Tampines bus package—currently operated by CD’s subsidiary SBS Transit—up for tender. The contract is expected to expire in July 2026, with results of the tender to be announced in the second half of 2025. CD’s incumbency and economies of scale provide an advantage in retaining this contract, but UOB Kay Hian expects compressed margins due to competitive bidding, which could lead to a potential S\$2 million decline in CD’s public transport segmental operating profit in 2026.

Meanwhile, SBS Transit is set to benefit from a 6% fare hike for buses and trains in Singapore, effective December 2024. This increase is projected to add S\$17.3 million in annual revenue, contributing an estimated S\$9-10 million to CD’s net profit.

UK Market Performance

CD’s UK operations are expected to improve in 4Q24 due to ongoing bus contract renewals that aim to enhance margins. Excluding the consolidation of the Addison Lee acquisition, UOB Kay Hian anticipates a medium- to long-term improvement in margins, reaching high single-digit to low-teen percentages. Seasonal increases in bus chartering activities in the fourth quarter are also expected to boost profitability.

Taxi Segment Performance

Despite fierce competition in the ride-hailing market, CD’s taxi segment is poised for growth, supported by contributions from recent acquisitions like A2B and Addison Lee. However, the full earnings impact of these acquisitions will likely be felt starting from 1Q25. Measures introduced by the LTA to attract more taxi drivers, such as reduced training hours and lower licensing costs, could mitigate the secular decline in taxi drivers, indirectly benefiting CD.

Regulatory Changes and Their Impact

The LTA has announced several regulatory updates to improve Singapore’s point-to-point (P2P) transportation sector. Key changes include:

• Removal of the call-booking requirement for smaller street-hail operators.
• Doubling the exit notification period for operators to 120 calendar days.
• Improved matching features for wheelchair users and other service types.
• Mandatory display of standardized trip information to enhance transparency.

Earnings Adjustment and Recommendation

UOB Kay Hian has revised its 2025-26 profit forecasts slightly downward by 2-3%, attributing the adjustments to lower margin assumptions in both the public transport and taxi segments. The brokerage maintains a “BUY” recommendation with a revised target price of S\$1.77 (down from S\$1.83), pegged to a 16x 2025F PE ratio, which aligns with CD’s five-year average long-term PE.

The recommendation is underpinned by CD’s strong earnings growth potential, supported by its attractive dividend yield of 5.7% for 2025, better margins in the UK bus segment, and incremental contributions from acquisitions.