COMFORTDELGRO CORPORATION LTD (SGX:C52)
ComfortDelGro - New Contract Wins; Keep BUY
- ComfortDelGro (SGX:C52)’s Australian subsidiary won a bus contract worth AUD1.7bn. Last week, it won two of 10 packages in a highly contested Land Transport Authority (LTA) tender for the installation of EV charging points in Singapore’s Housing & Development Board (HDB) car parks.
- Accordingly, we move 2023 and 2024 earnings forecast for ComfortDelGro higher by 2.5%. We maintain that ComfortDelGro should continue to witness gradual earnings recovery and that its stock valuation remains compelling.
ComfortDelGro won Sydney bus contract.
- See ComfortDelGro's announcement dated 07 Nov 2022 – ComfortDelGro’s indirect subsidiary won three metropolitan bus contracts in Sydney worth AUD1.7bn, for three regions, namely Region 4, Region 14, and Region 12. ComfortDelGro currently operates bus services in Regions 4 and 14. Region 12 is a new addition to the contract which was previously operated by Transdev NSW.
- As part of the new contract, Regions 12 and 14 will be merged together. The contract for Region 4 will commence in Apr 2023 and will run for eight years, while the contract for Region 14 will commence in May 2023 and will run for seven years.
- As we understand it, given the size and scale of the operations, Region 4 accounts for the larger portion of the contract (our estimate of 80%). Australia is ComfortDelGro’s largest investment outside of Singapore and accounted for ~21% of its operating profit in 1H22.
ComfortDelGro won EV charging infrastructure contract in Singapore.
- See ComfortDelGro's announcement dated 02 Nov 2022 – Last week, LTA awarded a tender for 10 packages to five tenderers for the deployment of at least 12,000 EV charging points covering nearly 2,000 HDB car parks across Singapore. The charging points will be installed by the end of 2025. ComfortDelGro was awarded the West and North regions under the tender, where it will deploy ~4,509 charging points at 387 HDB car parks.
- ComfortDelGro has already deployed ~67% of the 479 charging points from the pilot contract it won in 2021. We maintain that ComfortDelGro could make a high-single-digit to low-double-digit EBIT margin for this business. However, as revenues will be driven by the greater adoption of EVs in Singapore, we believe the business could take a few years before turning a profit, as Singapore’s EV adoption is still in its early stages.
Unchanged investment thesis on ComfortDelGro
- We maintain that ComfortDelGro's leadership position in Singapore taxi and recovery in public transport ridership should enable it to report a gradual earnings recovery. While downside risk from lower earnings in the UK persists, the improving operating environment in Singapore, which accounts for ~53% of its EBIT, should keep the earnings relatively defensive.
- ComfortDelGro's forward P/E valuation is well below its 10-year average, making the valuation quite compelling. Our target price for ComfortDelGro includes a 12% ESG premium over the S$1.60 fair value.
- See
- Maintain BUY recommendation on ComfortDelGro with S$1.80 target price from S$1.75, 33% upside, and ~4% yield.
Shekhar Jaiswal
RHB Securities Research
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https://www.rhbgroup.com/
2022-11-08
SGX Stock
Analyst Report
1.80
UP
1.750
