• Maintain BUY with SGD1.80 TP from SGD1.75, 33% upside, and c.4% yield. ComfortDelGro’s Australian subsidiary won a bus contract worth AUD1.7bn. Last week, it won two of 10 packages in a highly contested Land Transport Authority (LTA) tender for the installation of EV charging points in Singapore’s Housing & Development Board (HDB) car parks. Accordingly, we move 2023 and 2024 earnings higher by 2.5%. We maintain that it should continue to witness gradual earnings recovery and that its stock valuation remains compelling.

• Sydney bus contract. CD’s indirect subsidiary won three metropolitan bus contracts in Sydney worth AUD1.7bn. The contracts are for three regions, namely Region 4, Region 14, and Region 12. CD currently operates bus services in Regions 4 and 14. Region 12 is a new addition to the contract which was previously operated by Transdev NSW. As part of the new contract, Regions 12 and 14 will be merged together. The contract for Region 4 will commence in Apr 2023 and will run for eight years, while the contract for Region 14 will commence in May 2023 and will run for seven years. As we understand it, given the size and scale of the operations, Region 4 accounts for the larger portion of the contract (our estimate of 80%). Australia is CD’s largest investment outside of Singapore and accounted for c.21% of its operating profit in 1H22.

• EV charging infrastructure contract in Singapore. Last week, LTA awarded a tender for 10 packages to five tenderers for the deployment of at least 12,000 EV charging points covering nearly 2,000 HDB car parks across Singapore. The charging points will be installed by the end of 2025. CD was awarded the West and North regions under the tender, where it will deploy c.4,509 charging points at 387 HDB car parks. CD has already deployed c.67% of the 479 charging points from the pilot contract it won in 2021. We maintain that CD could make a high-single-digit to low-double- digit EBIT margin for this business. However, as revenues will be driven by the greater adoption of EVs in Singapore, we believe the business could take a few years before turning a profit, as Singapore’s EV adoption is still in its early stages.

• Unchanged investment thesis. We maintain that CD's leadership position in Singapore taxi and recovery in public transport ridership should enable it to report a gradual earnings recovery. While downside risk from lower earnings in the UK persists, the improving operating environment in Singapore, which accounts for c.53% of its EBIT, should keep the earnings relatively defensive. The stock's forward P/E valuation is well below its 10-year average, making the valuation quite compelling. Our TP includes a 12% ESG premium over the SGD1.60 fair value.

Source: RHB Research - 8 Nov 2022