Last week, I wrote an article on 5 Singapore stocks that will benefit from the concert boom in the country, and taxi and transport operator ComfortDelGro Corporation Limited (SGX: C52) was one of them.
Furthermore, the Singapore-based transport company is poised to benefit from the ongoing economic recovery in the aftermath of COVID-19, as momentum continues to build.
I also see signs of promising recovery and exciting growth prospects going forward.
Here are some reasons investors should get on board with ComfortDelGro in their next investment pick.
Fast track to recovery
The return to pre-pandemic levels of daily commuting appears imminent as ComfortDelGro’s rail ridership has skyrocketed to almost 98.3% of pre-COVID-19 levels, marking a month-on-month increase of 3.89%.
This rise in ridership has been spurred by the easing of domestic COVID-19 measures, the gradual return of office workers, and a potential shift of commuters towards train rides due to elevated taxi and ride-hailing surcharges.
The average daily number of point-to-point (P2P) trips has also seen an upward trend, reaching its highest levels in two years in April 2023.
This surge is expected to maintain momentum throughout the third quarter of 2023, driven by the full relaxation of domestic COVID-19 measures.
The Australian contract win
Aside from the strong recovery seen in Singapore, ComfortDelGro also recently secured a bus contract in New South Wales, Australia.
Valued at over A$200 million, this contract is set to commence for eight years starting July 2024 and follows three other successful tenders awarded in Q4 2022.
This development underlines the Australian government’s confidence in ComfortDelGro’s bus services and signals potential larger contract wins in the future.
Taxi segment to boost earnings growth in the near term
ComfortDelGro strategically reduced its taxi rental rebate in April 2023 and implemented a platform fee for rides booked via its CDG Zig app in July 2023.
With the favourable landscape for point-to-point transport players, there is potential for commission rate hikes in Q4 2023F.
The surge in entertainment events with globally renowned artists selling out additional shows in Singapore forms a virtuous cycle, enhancing Singapore’s status as an entertainment hub.
This trend directly benefits ComfortDelGro and adds to the profitability of the taxi segment.
CDG’s UK operations to recover
ComfortDelGro’s UK operations suffered a loss of S$10.4 million in FY2022.
However, they are expected to bounce back and become earnings-positive before interest and tax (EBIT) by FY2023.
This is due to cost-pass through measures and government aid, which will improve their margin.
To avert strike actions, the company granted an 11% pay increase with a 10% increase on back pay in December 2022 to its London Metroline public bus drivers.
These higher costs are gradually being offset by the annual indexation of service fees.
Additionally, recent tenders for route renewals carried out at a premium, as operators consider higher cost buffers amid inflation and uncertainties, contribute to profitability.
A promising investment
While the potential loss of SBS Transit’s bus packages may present near-term concerns, the overall outlook for ComfortDelGro is strong.
With rail ridership returning to pre-pandemic levels, strong contract wins, positive growth in drivers from the taxi segment and recovery in its UK operations, ComfortDelGro presents itself as an investment opportunity worth exploring.
Furthermore, its robust balance sheet and improving fundamentals create an even more appealing proposition.
However, investors are advised to stay updated on the company’s financial progress and operational advancements and to conduct their own thorough research and due diligence.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
