• Maintain BUY and SGD1.35 TP, 13% upside with c.4% FY23F yield. ComfortDelGro’s indirect subsidiary CDC NSW has won an >AUD200m 8- year outer metropolitan bus contract in Australia – it will commence in Jul 2024. While earnings contributions from the contract will be insignificant, we view it as a positive sign of CD’s continuous growth in Australia. Australia represents CD’s largest investment outside of Singapore and accounted for c.19% of FY22 operating profit. We remain positive on CD, amidst expectations of an improvement in its operations and earnings.

• New Australian contract. CD’s indirect subsidiary, CDC NSW, has won an outer metropolitan bus contract worth over AUD200m, in New South Wales (NSW). The contract was awarded to Red Bus CDC NSW, a 50:50 JV between CDC NSW and Red Bus Services, an established NSW bus operator with over 80 years of experience. The contract is for Region 7, which covers the NSW Central Coast including The Entrance, Gosford, Wyong and the surrounding areas. This 8-year contract, which will commence in Jul 2024, entails bus services that are estimated to serve more than 2m passengers each year.

• Limited earnings impact, but CD is building strong capabilities outside Singapore. Assuming the contract value is evenly spread over the eight calendar years, the annual revenue contribution of SGD25m would account for 3.5% of CD’s 2022 revenue from Australia. Based on the high single-digit EBIT margin that CD made in Australia during 2022 and CD’s 50% share of the earnings, the overall profit contribution from this contract win should be insignificant. Nevertheless, the win adds to CD’s recently won contracts worth AUD1.7bn for operating two bus contracts in Metropolitan Sydney. With a total investment of SGD1.2bn to date, Australia is CD’s largest investment outside of Singapore and accounted for c.19% of its operating profit in 2022.

• Unchanged investment thesis. We maintain our positive outlook for CD based on our expectations of: i) An improvement in public transport earnings in overseas operations during 2H23, amidst the indexation of higher operating costs in the UK, ii) improvement in its rail ridership in Singapore, and iii) improvement in taxi earnings amidst a reduction in taxi rent rebates, and iv) the introduction of a new platform fee for taxi and private-hire bookings on its platform. We see scope for better earnings if the commission rates for bookings on CD’s Zig app are increased (CD charges only 5%, compared to the 20% levied by Grab and Gojek). We continue to value CD using a DCF-based methodology. Due to its high ESG score, we also add a 8% ESG premium to its fair value of SGD1.25 to derive our TP.

Source: RHB Research - 7 Jul 2023