In Singapore, we all take taxis from time to time. For investors, many not be aware but Singapore’s largest taxi company is also a listed stock on the SGX.
ComfortDelGro Corporation Limited (SGX: C52), a name synonymous with public transportation and taxi services, recently delivered its much-anticipated financial results for H1 2023.
Amidst a challenging and volatile business environment, ComfortDelGro’s numbers reveal a story of resilience and adaptability.
While there are certain headwinds, ComfortDelGro’s financials provide a roadmap for the future and reveal some surprising developments that could pique the interest of both investors and industry watchers.
Here are my five key highlights from ComfortDelGro’s earnings in H1 2023.
1. Strong Q2 2023 indicates ComfortDelGro has turned corner
Despite reporting a 7.4% year-on-year (yoy) decline in adjusted profit after tax and minority interests (PATMI) to S$78.5 million in H1 2023, ComfortDelGro’s PATMI surged by 16.6% yoy and 39.3% quarter-on-quarter (qoq) in Q2 2023.
This was mainly driven by the public transport and taxi segments.
The strong Q2 2023 results indicate that ComfortDelGro has turned a corner and is in the middle of an upturn, making it an attractive investment opportunity.
2. Public transport segment was key driver of earnings
The public transport segment was a key driver of ComfortDelGro’s Q2 2023 performance, with higher rail ridership and improved charter activities in Australia.
In addition, tapering inflationary pressures contributed to a stronger showing in this segment.
The Q2 2023 operating margins expanded by 1.3 percentage points qoq, thanks to cost indexation for the company’s UK bus packages.
3. Higher margin in the taxi segment
Aside from that, the reduction of daily taxi rental rebates drove higher margins in the taxi segment.
ComfortDelGro’s Q2 2023 core operating profit surged by 104.8% yoy and 53.6% qoq to S$26 million, largely due to this reduction.
The taxi and private hire vehicle (PHV) segments of ComfortDelGro are poised to perform even better in H2 2023.
A significant boost comes from the implementation of a platform fee of S$0.70 for rides booked via its Zig app from July 2023 onwards.
This move is expected to contribute substantially to the segment’s performance moving forward, with an approximate increase of S$11 million to S$12 million in revenue in H2 2023.
Moreover, ComfortDelGro has raised its commission rate (currently 5% vs its peers’ rate of 15-20%), which is expected to enhance profitability further.
4. ComfortDelGro’s UK operations likely to turn to EBIT positive in H2 2023
ComfortDelGro’s UK operations are likely to return to earnings before interest and tax (EBIT) positive in H2 2023, as cost indexation mechanisms put in place will compensate for previous driver pay increases.
The company expects new and renewal contracts to be tendered at significantly higher service fees to cater for higher operating costs and more rational bidding by other operators.
5. Higher dividend payout policy
To provide more certainty to shareholders, ComfortDelGro has adjusted its dividend policy – committing to pay out at least 70% of PATMI, an increase from 50% previously.
The company declared an interim dividend of 2.90 Singapore cents per share in H1 2023, representing a dividend payout ratio of 80% and an annualised yield of around 4.6%.
Improving outlook for ComfortDelGro
ComfortDelGro’s recent performance demonstrates the company’s resilience and adaptability in a challenging market.
With an improved balance sheet, increasing dividends, and the potential for growth through mergers and acquisitions (M&A), the company is well-positioned for sustained upward momentum.
Investors in Singapore should consider the attractive prospects that ComfortDelGro offers as it continues to navigate the evolving transportation landscape.
Supported by upcoming favourable tailwinds, the SGX-listed company is expected to continue its upward momentum moving forward, offering attractive prospects for both growth and income investors.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
