Macquarie is listing a new ComfortDelgro call warrant this morning for investors keen to gain exposure to the rising ComfortDelgro shares. ComfortDelgro is currently the best performing component stock on the STI, quarter-to-date, with a total return of 22.4% versus the STI’s +2.2% over the same period.

The stock, currently trading 3.2% below its all-time record price has been boosted by better-than-expected company earnings as well as the government’s plan to overhaul the transport industry.


First boost – ComfortDelgro results
The first wave of buying in Comfort Delgro shares was sparked by the release of its better-than-expected first quarter 2014 earnings result on 12 May. The company had reported a robust 10% year-on-year (YoY) profit growth of S$63.3mn, 10% ahead of Macquarie Equities Research and the street’s estimates.

ComfortDelgro’s increased earnings came on the back of higher group revenue which rose 9.2% to S$950.8 million due to broad-based growth in its key businesses. Revenue from its overseas operations accounted 39.6% of total group revenue, up from 38.2% the same time last year. The figure was fuelled by its British and Singapore units and boosted by a positive foreign currency translation of S$3.8 million.

Buses remained the top contributor, with revenue rising 13% S$467.5 million. Comfort Delgro’s 75% owned SBS Transit narrowed its bus operating loss to S$4.7 million, from S$5.4 million same time last year. Taxis were the second-biggest contributor, with revenue rising from S$285.8 million to S$305.8 million.

Overall, the group's financial position remained strong. Cash and equivalents rose to S$926.5 million, from S$757.9 million. Total borrowings inched up from S$807.9 million to S$818.4 million. Comfort Delgro’s group directors said they expect most businesses to post revenue growth for the rest of the financial year but added that cost pressures remain.

Comfort Delgro shares jumped 4.2% the following day after already moving 3.9% on the same day before the company posted its earnings results.

Second boost – LTA reform
Comfort Delgro’s shares then received a second boost when the Singapore Land Transport Authority (LTA) announced plans to overhaul the bus industry a week after its results release. LTA said it would restructure the bus sector to a "government contracting model" to encourage more competition and ease operators' capital expenses. 

Singapore’s two bus operators – Comfortdelgro’s 75%-owned SBS Transit and SMRT have reported losses in their core bus businesses, burdened by the high cost of operations.

As part of the new bus industry model, the Singapore government will own all bus infrastructure such as depots as well as operating assets such as buses and the fleet management system. LTA will contract out the bus services, with fare revenues retained by the government while bus operators will be paid a fixed fee.

LTA’s announced measures sent Comfort Delgro shares skyrocketing to an all-time high of $2.51 on June 6 as it gained 23% over four weeks. Yesterday, Comfort Delgro shares closed 7 cents, or 3.2% below its June 6 record price.

Source: Macquarie Research - 24 Jun 2014