• Keep BUY and SGD1.70 TP (16% upside), 6% FY25F yield. Singapore One Rail (SOR), which is the SBS Transit (SBST)-RATP Dev JV, has won a contract to operate the 24km Jurong Region Line (JRL) for a first licensing period of nine years from 2027, with the option to extend it for two more years. The service fee for 11 years is c.SGD750m. The JV will be majority-owned by SBST, but we expect earnings contribution to be small. Still, this win may herald more global contract wins. We stay positive on ComfortDelGro, and expect earnings growth to sustain in the quarters ahead.

• Contract details. This is Singapore’s first rail contract win where a foreign operator is involved. As part of the JRL tendering process, foreign operators were allowed to participate in the tenders through JVs with local rail operators, as minority partners with less than a 25% stake. The total service fee quoted by SOR’s winning tender was c.8% lower than that quoted by SMRT Trains. SBST, a subsidiary of CD and RATP Dev, have committed to using the latter’s experience to build local capabilities in rail operations and maintenance. The Government will bear the fare revenue risk during the first licensing period of the JRL, to cover for the ridership and fare revenue uncertainties. SOR will be paid a service fee to operate the line, while the Government retains all fare revenue. The Government will offer an incentive payment for outperformance in areas such as service reliability, customer satisfaction, and operational and maintenance processes. Conversely, a service fee deduction will be imposed if SOR does not meet expectations.

• More about JRL. The JRL will be Singapore’s seventh mass rapid transit (MRT) line. A fully elevated line spanning 24 km, the JRL will comprise 24 stations and one depot. The line will connect the Jurong Industrial Estate, Jurong Innovation District, and the Nanyang Technological University (NTU). It will also support the development of the Jurong area, which is set to be the largest commercial hub outside the central business district. The line will have three interchange stations at Boon Lay, Choa Chu Kang, and Jurong East MRT stations. The JRL will open in phases from 2027 onwards.

• Outlook remains positive. Last year, SBST and RATP Dev jointly won the contract to operate the South sector of Line 15 of the Grand Paris Express in the Greater Paris region, France. We believe CD, through this partnership with RATP Dev, could win more of such contracts globally. For the near term, we reiterate our positive view on CD, as its strong earnings growth remains supported by the continued improvement in UK public transport margins, contributions from Australian bus tender wins, and the acquisition of Addison Lee in the UK.

Source: RHB Securities Research - 2 Dec 2024