ComfortDelGro - DBS Research 2024-09-12: Underappreciated International Expansion

• We remain optimistic on ComfortDelGro's share price and expect a re-rating as the group delivers on a stronger 2H24 earnings.
• Our optimism lies in the projection for a stronger recovery and contribution from its UK bus contracts, along with full contribution from its recent acquisitions. This growth trend should continue into FY25F on the back of further UK Transport for London (TfL) bus contract renewals, cost indexation, and contribution from newly won Manchester bus contracts.

Consensus underestimating UK bus recovery

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• We believe the consensus is conservative with a cautious outlook on UK bus, which saw relatively muted performance with estimated 1H24 revenue and operating profit at S$451mil and S$5.6mil, respectively, translating to a 1.2% operating margin.

Why is the market underestimating UK recovery?

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• Notably, looking at trends from 2020, and comparing on a like-for-like basis, the changes in contract values were traditionally a low to mid-teen increase (10%-14% in 2020-2022) but stepped up by 24% in 2023 and 44% in 2024.
• In addition, we also saw average cost per mile value increasing by 63% for contracts commencing in 2024, which supports management’s indications of significantly higher margins for renewed contracts.
• Accordingly, we project that we should see a very significant operating profit uplift in 2024, which is likely to extend into 2025.

Disproportionately higher uplift in 2H24 based on contract renewal timeline.

• Read more at SGinvestors.io.

Zheng Feng CHEE DBS Group Research | Andy SIM CFA DBS Research | https://www.dbs.com/insightsdirect/ 2024-09-12 SGinvestors.io

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