ComfortDelGro - DBS Research 2022-11-15: Slower But Ride Continues On

ComfortDelGro - Slower But Ride Continues On

  • ComfortDelGro (SGX:C52) reported its 3Q22 Business Update, with revenue and net profit up by 10.1% and 32.9% y-o-y to S$969.5m and S$34.3m, respectively.
  • The improvement in revenue was broad based, across all its business segments along with easing restrictions mainly in Singapore, Australia and the UK, except for China. Most of its business segments saw higher revenue, save for Bus Station.
  • 3Q22 operating profit surged 45.9% y-o-y to S$58.8m, helped by easing restrictions which saw improved contribution from its Taxi, Vehicle Inspect & Testing as well as Driving Centre segments. This was negated partially by lower contribution from its Public Transport, Automotive Engineering and losses in its Bus Station. ComfortDelGro had S$19.8m in government reliefs in 3Q21, and this has tapered significantly to S$5.4m in 3Q22, which was mainly from China and the UK. Reliefs from Singapore and Australia has ceased.
  • Overseas operations surprised us on cost pressure, and weakness expected to persist into 4Q22. Overseas contribution accounted for 21% of 3Q22 operating profits, vs 30-40% typically. Stripping out SBS Transit (SGX:S61)’s 3Q22 operating profit excluding government relief (OPE), its UK and Australia public transport businesses’ 3Q22 OPE declined from S$15.0m to S$3.5m, a 77% decline. Management highlighted that UK business was the main cause of the OPE decline and stated that it was due to cost indexation and timing issues which is expected to persist into 4Q22. Discussions with the transport authority on those issues are in the final stages.

Our Views on ComfortDelGro's 3Q22 Business Update

Results not as strong as expected; public transportation segment facing margin compression/regulatory headwinds.

  • Though the turnaround in its main operations and its strong y-o-y performance came in as per expectation for most of its segments, its weak overseas public transport operations were a negative surprise.
  • Despite securing a new region in Australia (Region 4, 14 and 12), its overall margins from the recently renewed contract in 2023 would be lower as ComfortDelGro had to sacrifice margins to secure the renewal in the face of keen competition.
  • UK’s regulatory environment also proved challenging. Currently, ComfortDelGro is in discussions with the transport authority for funding to cover higher inflationary costs (wages and fuel) for the year.
  • On expectations of higher costs and lower margins from its bus contracts, we trim earnings forecast for ComfortDelGro by 9%/ 5%/ 5% for FY22F/ 23F/ 24F. We continue to project y-o-y earnings improvement in 4Q22 and into FY23F, on the back of easing restrictions and improved mobility. This is partially offset by expectations of higher cost pressure, particularly in its Public Transport segments.
  • While we have trimmed back our forecasts, we believe the market has yet to price in the recovery with ComfortDelGro's share price still trading at 1x P/BV, 13.8x P/E and a yield of 5.5% for FY23F. Maintain BUY recommendation on ComfortDelGro with target price revised to S$1.85.

ComfortDelGro's balance sheet remains strong; with limited capex needs, we believe dividend payout could resume to 70- 80% range.

  • Net capex for ComfortDelGro in 3Q22 was at S$67.1m, up from last year’s S$51.9m. This brings 9M22 group net capex to S$150.7m, higher than 9M21’s S$136.1m, but still within our estimates. Along with its existing strong balance sheet coupled with net cash inflow of S$59.8m for year-to-date 9M22, cash and short-term deposits continued to increase to S$978.9m (as of 30 Sep 22), up from S$919.1m as of 31 Dec 2021. As a result, ComfortDelGro’s net cash stood at ~S$650m, up from ~S$520m as of 31 Dec 2021.
  • With this cash horde, as well as the interim dividend signal, we believe ComfortDelGro's dividend payout ratio could revert to pre-COVID range of between 70-80% of net profit. See ComfortDelGro's Dividend History.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @

Andy SIM CFA DBS Group Research | 2022-11-15
SGX Stock Analyst Report BUY MAINTAIN BUY 1.85 DOWN 1.950

Previous report by DBS Research:
2022-10-20 ComfortDelGro - Worth Betting On This Attractively Priced Ride

Target prices by 4 other brokers at ComfortDelGro Target Prices.
Listing of broker reports at ComfortDelGro Analyst Report.

Relevant links:
ComfortDelGro Share Price History,
ComfortDelGro Announcements,
ComfortDelGro Dividends & Corp Actions,
ComfortDelGro News Articles


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