ComfortDelGro - NDR Highlights: A Better Year Ahead

Research report dated January 11, 2018


Share Price SGD 1.99
12m Price Target SGD 2.40 (+20%)
Previous Price Target SGD 2.40


Price Performance

Source: FactSet

EBIT contribution by country, 3Q17

Source: FactSet

Uber will be positive; better rail, overseas expected

We hosted a NDR for Comfort in Malaysia. Key takeaways included: 1) Uber tie-up should be earnings accretive, as Uber's car rental business is not loss-making on a core level; 2) revenue synergies, including vehicle maintenance and inspection from the tie-up could lift earnings; and 3) better prospects for the rail segment and overseas businesses in 2018. Earnings should improve in 2018 after a lacklustre 2017 that resulted from a declining Taxi business and greater losses in the rail segment to support upfront costs for DTL3. Maintain BUY and DCF-based TP of SGD2.40 (implies 16x FY18E EPS, in line with LT mean).

Uber tie-up could benefit Comfort on several fronts

Potential impact from Uber tie-up was the most discussed topic, as this is Comfort's first NDR since the tie-up announcement in Dec 2017. Aside from earnings accretion from the acquisition of Uber's car rental business, Comfort could also reap other revenue synergies, including vehicle maintenance, and the inspection and selling of fuel. In addition, the enlarged platform will enable Comfort to offer more choices to its drivers and customers. For instance, Uber's booking platform could offer more booking jobs for Comfort's drivers and they could opt to drive private hire vehicles. For consumers on Uber's platform, they can have access to more vehicles. There is also potential for tie-ups with Uber beyond Singapore.

DTL3 should narrow losses for rail segment

The earnings drag from DTL3 should narrow significantly in 2018, as revenue contributions have started since its opening in Oct 2017. Based on our estimate, rail EBIT loss could narrow from SGD25m in FY17 to SGD5m in FY18, which should lift earnings notably. Daily ridership for the DTL in 2017 exceeded 400k and is not too far from the target of 500k.

More overseas opportunities in UK and Australia

Expansion of overseas businesses is also another priority in FY18. For the UK, Comfort could grow its business by tendering for routes outside of London. For Australia, it could acquire family-owned bus businesses that are synergistic to its existing operations. There are also more organic opportunities as Australia is still in the midst of privatising its public transport system.

Value Proposition

  • Land-transport conglomerate with over 46,000 vehicles globally. Its bus (39%) and taxi (36%) businesses are the biggest EBIT contributors.
  • Singapore (60%) is the largest EBIT contributor by geography. It also has significant operations in the UK/Ireland (18%), Australia (12%) and China (10%).
  • Structural threats to core taxi business from private-hire car operators, Uber and Grab.
  • Singapore bus earnings may benefit from the change to asset-light, fare-independent regime.

Consistently delivers higher returns than its cost of capital

Source: Company, Maybank Kim Eng

Financial Metrics

  • Expect improving Singapore bus profits after a change in business model from Sep 2016. Profitability for rail could start to improve as the Downtown Line fully opened in 2017.
  • This should drive margin expansion over the next three years.
  • Taxis key in past five years, but we project declining earnings given imminent threats. Increase in private-hire car drivers and its taxi utilisation are key indicators to watch.
  • We expect rising FCF (recovery in FY17E vs FY16A, further increase in FY18E, stable in FY19E) to support progressive dividend distributions.

Operating profit progression from 2010 to 2018E

Source: Company, Maybank Kim Eng

Price Drivers

Historical share price trend

Source: Factset, Maybank Kim Eng

1. Government announcement of a change in bus operating model seen as a positive for the sector.

2. Uber started a car-rental company. Aggressive expansion by the new entrant is seen as a competitive threat to its taxi business.

3. Taxi's EBIT started declining due to intensifying competition from the private hire vehicles.

4. Lost the tender for Thomson East Coast Line.

Swing Factors


  • Higher-than-expected bus profitability.
  • Successful bids for new rail lines in Singapore.
  • Value-enhancing acquisitions of overseas business.


  • Decline in taxi utilisation or rental rates.
  • Overpaying for acquisitions.
  • Higher labour and energy costs.

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