• ComfortDelGro (SGX:C52) won a S$1.13bn contract to operate rail services in Auckland through its 50%-owned JV with UGL Rail. Initial term of 8 years to commence Jan 2022.
• We are positive on the win; this is an asset-light business model with stable cash flow and defensive earnings. We estimate EPS accretion of 1.1%-1.8%.
• Reiterate ADD rating on ComfortDelGro with target price of S$1.80. ComfortDelGro is a beneficiary of economy reopening. Value unlocking in Australia, positive updates on DTL are potential catalysts.

ComfortDelgro Wins Auckland Rail Franchise

• ComfortDelGro announced that its joint venture has won a S$1.13bn contract to operate rail services in Auckland, New Zealand. This marks ComfortDelGro’s its first foray into the country. The contract will commence on 16 Jan 2022 for an initial term of 8 years, with opportunity for further extensions.
• The Auckland Rail Franchise (ARF) contract was awarded by Auckland Transport to Auckland One Rail (AOR), which is a 50:50 joint venture between ComfortDelGro and UGL Rail Services, an Australian rail operations and maintenance company under the CIMIC Group (CIM AU). AOR won the tender over incumbent operator which has been running the rail services since 2004.
• The Auckland Rail network consists of four lines representing 185km of track, 42 stations and 80 trains. Pre-COVID, the network had an annual ridership of ~21m. Under the contract, AOR will assume responsibility for passenger train operations and station operations and maintenance across the network. It will also take on additional responsibility for maintenance of rolling stock from 2025.

Tender Win a Positive, Though EPS Accretion May be Limited

• We are positive on the tender win, as it marks ComfortDelGro’s successful entrance into another country between 5%-8%, we estimate ComfortDelGro’s profit share from the JV FY22F.

Reiterate ADD on ComfortDelGro With a Target Price of S$1.80

• We reiterate our ADD deviation above ComfortDelGro’s 5-year historical average).

• Besides the potential value unlocking of its Australia risks include slower ridership recovery.

Source: CGS-CIMB Research - 27 Aug 2021