• Keep BUY and SGD1.70 TP (14% upside), c.5% yield. ComfortDelGro has reported its sixth consecutive quarter of YoY earnings growth, as expected. 3Q24 YoY growth was aided by the renewal of UK public transport contracts at higher margins, contribution from the CMACand A2B acquisitions, as well as higher commission rates and fares for its Singapore taxi/private hire vehicles (PHV). Earnings growth momentum should sustain amidst continued improvement in UK public transport margins, contribution from Australian bus tender wins, and the acquisition of Addison Lee in the UK.

• 3Q24/9M24 results update. 3Q24 revenue came in at SGD1.18bn (+18.4% YoY) with a PATMI of SGD57.5m (+15.2% YoY), while 9M24 revenue came in at SGD3.30bn (+15.4% YoY). 9M24 PATMI of SGD152.8m (+19.0% YoY) was a tad below our estimates. We maintain our estimates as we expect the sequential improvements in the public transport business (especially in the UK) to push 4Q24 margins higher. CD noted that about a quarter of UK bus contracts have been adjusted to higher margins, and more upward adjustments will be visible as contracts are renewed. This should continue to drive margin improvement over the next 6-9 months. YTD capex was 23% higher YoY and should see a similar trend in 4Q24 as CD continues to replace its Singapore diesel taxis with EV/hybrid vehicles.

• Singapore taxi/PHV business remains soft. Except for the contribution from A2B, the core taxi business has remained under pressure. CD noted that Singapore continues to see intense competition from the larger PHV players (eg Grab, Gojek, and TADA). Booking volumes on its Zig platform have declined YoY, and the number of active PHV drivers on its platform has remained soft. However, CD is working on improving its Zig platform and plans to introduce new features like bringing more premium and larger vehicles onto its platform, and is considering introducing cancellation fees, which its competitors currently charge. For 2025, we expect the business segment to see contributions from an improving China taxi business as well as contributions from the A2B and Addison Lee acquisitions.

• Rising dividend payout remains sustainable; TP includes ESG premium. Although CD’s balance sheet could move from a net cash to net debt position on a pro forma basis post the acquisition of Addison Lee, we remain fairly confident of the company being able to sustain our estimated dividend payout. We estimate CD’s 2025–2026 dividend yields at 6-6.5%. Our unchanged TP includes a 6% ESG premium to CD’s fair value, based on its 3.4 ESG score vs the 3.1 country median. 

Source: RHB Securities Research - 15 Nov 2024