ComfortDelGro – Slowly but surely

Excerpts from Maybank report

ComfortDelgro (SGX: C52)

• ComfortDelgro (CDG) has been a relative laggard (+1.4% YTD) compared to other reopening plays.
• We believe the market will re-rate the stock once the group is able to consistently deliver core EPS growth, driven by better operating leverage.
• In our view, this should come on the back of recovery in ridership across its key geographies, and continued declines in fuel prices.

Maintain BUY and DCF-based TP of SGD1.76 (8.3% WACC and 1% long-term growth).

ComfortDelgro building presence in overseas markets

Last month, ComfortDelGro Corporation Australia announced it has clinched a six-year contract worth AUD220m as the sole operator of public bus transport services in Darwin. It covers a significant part of the Northern Territory’s public transport network, with 170 vehicles operating across more than 180 bus routes. Separately, CDG is acquiring Irish coach operator GoBus for EUR12m, making it the third-largest inter-city coach operator in the country. This will comprise a fleet of 31 buses and three inter-city coach routes, which have been experiencing robust commuter demand in recent months with easing restrictions. Overall, our forecasts are unchanged given the minimal earnings impact.

Continued recovery in rail and taxi ridership

Meanwhile, SBS Transit continues to see recovery in average daily rail ridership to >1m in Jun '22 (+3.4% MoM, +76.7% YoY). This is equivalent to around 83% of pre-pandemic levels after relaxation of safe-management measures, and more employees return to the office full time. We see a similar trend for point-to-point trips, which has seen higher passenger demand in tandem with improving social mobility. Despite the emergence of omicron subvariants, we do not think the government will tighten Covid-19 rules as Singapore is now more prepared to handle outbreaks.

Incentivise PHV drivers with new ride hailing model

CDG has introduced a 3-tier commission rate (i.e. 4% for its own 8,900 taxis, 8% for private hire vehicle (PHV) using CDG cars, or 10% if they use their own car) on the trip fare for bookings via mobile app since May ‘22. Given the more competitive commission fees, it has grown its PHV drivers to c.1,800 with a rental fleet of 300 vehicles. The daily rental rebate of 15% was extended until end-Sep but we think there is potential for a gradual reduction in the discount, which would boost taxi segment profitability.

You can find the full report here and the company website here