ComfortDelGro - RHB Invest 2024-04-05: UK Bus Contract To Boost Earnings From 2025; BUY

• Metroline, ComfortDelGro (SGX:C52)’s UK bus subsidiary, was awarded contracts to operate four public bus franchises in Greater Manchester. The contracts, which start in Jan 2025 and are spread over a period of five years, have a total value of GBP422m.
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Details of the contract.

• Metroline, which is the fourth-largest scheduled bus operator in London and operates about 17% of the city's scheduled bus services, has collectively won four bus packages worth GBP422m (~S$720m). The contracts are spread over five years, with options to be extended for two, one-year terms.
• The contract comprises of a total of 232 different services served by 420 buses and over 1,350 employees, adding twice as many services and a 30% increase over its existing portfolio.
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Earnings impact.

• Assuming the contract value is evenly spread across the 5 years, the annual contract value would be S$144m.
• ComfortDelGro’s public transport business currently generates a 4% EBIT margin. Assuming a 4-8% EBIT margin and a 25% tax rate, we estimate the incremental earnings in 2025 from these contracts would be between S$4.3m and S$8.6m. This translates to a 1.8–3.6% upside to our existing 2025F. However, we have yet to incorporate this into our estimates.

Near term earnings growth drivers.

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Shekhar Jaiswal RHB Securities Research | https://www.rhbgroup.com/ 2024-04-05 SGinvestors.io

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