COMFORTDELGRO: The transport you ride overseas could well be run by this S'pore company. Here's its latest contract win

THE CONTEXT • Singapore-listed ComfortDelGro has an unquenchable appetite for overseas business as its latest inroad into the Australian market shows. • Its 8-country footprint encompasses Sweden, UK, Ireland, Australia, New Zealand, China, Malaysia, and Singapore. It operates buses, taxis, coaches, trains, ambulances and rental vehicles. •  ComfortDelGro's latest triumph is in winning a A$1.6 billion contract to operate buses in Victoria, Australia. A listing of the places that ComfortDelgro's operations extend to in Australia (below) illustrates the penetration of its network. • CGS-CIMB's latest report rates the stock (market cap: S$3.1 billion) an "Add" with a $1.70 target price. Read more below....

Excerpts from CGS-CIMB report
Analyst: ONG Khang Chuen, CFA

■ ■ CD’s bus tender wins in Victoria, Australia will grow its footprint there by 30%. The contracts worth A$1.6bn commence in Jul 2025F and run for 10 years.  COMFORTDELGRO Share price:  $1.42 Target:  $1.70 ■ We expect minimal impact to recurring EPS from these contract wins; though CD will record a one-off gain of S$14m from the sale of its bus depots. ■ We reiterate our Add call with a TP of S$1.70, based on 16.2x FY25F P/E. Aside from buses, ComfortDelgro also operates train services. In Singapore, SBS Transit, a 74.4% subsidiary of ComfortDelGro, operates the North-East MRT Line and the Downtown Line. Photo: Company

 ● ComfortDelgro (CD) announced today (4 Sep 2024) that it has been awarded 3 bus contracts in Victoria, Australia, valued at A$1.6bn (S$1.4bn) in total. These contracts will commence in Jul 2025F and will run for 10-year terms.

● With the latest win, CD not only retains its existing contracts but also expands its services in the west and northwest regions. This signifies a 30% growth in CD’s Victoria public bus operation which will account for 20% of Melbourne’s metropolitan network, according to CD.

● CD will acquire an additional 86 buses, bringing its total fleet for Melbourne metropolitan contracts to 369. The financing for the buses and depots included in the new tenders will be provided as part of the contracts, and CD expects a full transition to zero-emission bus (ZEB) operations prior to the conclusion of the contract term.

● In addition, as a result of these contract wins, CD will transfer ownership of existing bus depots, leading to a one-off gain from the sale amounting to S$14m.

● Despite the increased routes, we think the impact on recurring EPS from this contract win will be minimal, as CD has previously indicated that margins could be slightly compressed (compared to previous round of tender) due to competitive pressure.

● Nevertheless, we think the sustained momentum in securing overseas contracts could bode well for CD’s share price.

In the past two years, CD has successfully secured tenders in Australia, which include the retention and expansion of metropolitan Sydney services, the retention and expansion of Outer Metropolitan NSW services, and growth in its Darwin public bus services portfolio.

Full report here