• Reiterate BUY and SGD1.65 TP, 17% upside, and 5.3% FY24F yield. 1H24 PATMI accounted for 44% of our 2024F earnings. While there are competitive pressures in the Singapore taxi business and driver shortages in the Australian public transport segment, we expect a better 2H24 amidst seasonality, contributions from a recently completed acquisition, and improving margins for ComfortDelGro’s UK public transport business. We keep our estimates unchanged and note that the market has yet to appreciate CD’s strong YoY improvement in quarterly earnings.

• The UK should continue driving the public transport business higher. The public transport wing reported strong growth in revenue and EBIT during 2Q24, aided by UK bus contract renewals at higher margins and the ongoing UK cost indexation benefits flowing into the bottomline. CD continues to see the renewal of UK bus contracts at higher margins as more industry players exit the market. It also expects UK public transport to see a seasonally stronger 2H24, specifically for its bus chartering business. In Singapore, the public transport business should see some dip in revenue from the loss of the Jurong-West bus contract and successful re-tendering of the Seletar bus package at slightly lower margins.

• A2B acquisition to boost taxi earnings. The taxi business reported strong growth in revenue and EBIT due to contributions from A2B, a business that CD acquired in April. Excluding A2B’s contributions of SGD31.2m and SGD5m in revenue and EBIT, 2Q24 taxi revenue would have been stable, while EBIT would have reported YoY improvement. This was due to lower Singapore operating costs, the introduction of Zig platform fees in Jul 2023, and higher Zig commission rates from Dec 2023. CD’s Singapore taxi business continues to see increased competition, as Zig booking volumes in 2Q24 fell to c.6.3m vs c.6.7m in 1Q24. We expect the improvements in the taxi business to sustain in 2H24. Additionally, CD plans to focus on maintaining platform stability and rolling out new features to strengthen its market position before considering any increase in commission rates, which is the lowest in the industry.

• Strong growth in the “Other Private Transport” segment. The latter’s revenue contribution increased to 9.7% in 2Q24 (2Q23: 3.7%). The segment also turned profitable with an EBIT of SGD2.9m vs a SGD0.8m loss in 2Q23. This was largely due to contributions from the acquisition of CMAC Group (completed in February). Excluding this contribution, the business segment would have been loss-making at EBIT level.

• We continue to value CD using DCF. Our TP includes a 6% ESG premium to its SGD1.55 FV based on its 3.4 ESG score vs the country’s 3.1 median.

Source: RHB Research - 21 Aug 2024