ComfortDelGro Corporation Ltd: FY24 Analyst briefing key takeaways
- International business to drive growth with a full year contribution of Addison Lee, A2B and CMAC, commencement of Manchester bus contract, and continued margin expansion of UK bus segment
- Expect some softness in local business segments with intense competition in ride-hailing space and full-year loss of Jurong West bus package
- Effective financing costs expected to ease with refinancing of bridging loan and declining rates in Singapore and Australia
- Capex for 2025 to increase by ~SGD100mn largely on acquiring bus assets for Manchester contract, which are backed by long-term contracts; Maintain BUY with TP of SGD1.80
What’s New
We attended ComfortDelGro FY24 full year results briefing in the morning of 28 Feb, and the following are our key takeaways.
UK bus – UK bus segment achieved a mid-single-digit operating margin in FY24, with room for further expansion to high single digits in 2025. Tender contracts remain at double-digit margins, though management expects increasing competition to bring margins down toward a more normalized historical level of high single digits. There are up to 12 additional contracts up for tender. Additionally, revenue is expected to receive a boost from the commencement of the Manchester bus contract in January 2025. (The group was awarded this contract in March 2024 for a five-year period, with an option to extend by up to two additional years, valued at GBP 422 million. See our previous comments from 29 Mar 2024).
Addison Lee – Addison Lee’s contribution to the group began on 7 November 2024, with an operating profit of SGD3.9mn, as presented in the results briefing. Management noted that profitability was softer due to seasonal factors. The financials for the year ending August 2024 have been filed and will soon be publicly available, which should show an improvement in earnings from 2023. Looking ahead to 2025, the company expects a significant uplift in profitability, driven by lower financing costs, the exclusion of one-off exceptional expenses, and continued growth.
Australia bus – Revenue is expected to increase with the renewal of the Victoria contract. However, as the renewal comes with lower margins, net operating profit is projected to remain largely flat y/y.
SG Taxi – Singapore’s taxi business remains stable with flat trip volumes. Competition has intensified with the entry of new players such as TransCab and Geolah. Management highlighted Tada as a key disruptor with its no-commission model, which it believes may have surpassed Gojek in market share. The company is currently evaluating a platform fee-only model (similar to Tada), which has shown early success in driving higher booking volumes.
SG Public Transport – SBS Transit continues to perform well, though a reduction in advertising concessions negatively impacted operating profits in 2024. The fare increase implemented in Dec 24, coupled with higher ridership and a lower-cost electricity contract, is expected to offset some of these challenges. Though it continues to see operational cost headwinds especially on wages and is expected to feel the full impact of the loss of the Jurong West bus package (expire on 31 Aug 24) will be felt in 2025.
IT & Communications Costs: Increased IT and communications costs seen in the income statement were attributed to recent acquisitions (CMAC and Addison Lee), which are heavily reliant on technology.
Financing Costs: While overall interest expenses are expected to increase due to the sizable Addison Lee acquisition, the effective interest rate should decline in 2025. This is due to the refinancing of the bridging loan used for the acquisition into a lower-cost, likely floating-rate term loan. Additionally, the group's existing floating-rate term loans should benefit from declining rates in Singapore and Australia.
Capex: Capex for 2025 is projected to rise compared to 2024, primarily due to new bus contracts and fleet electrification. However, these expenditures are largely backed by long-term contracts, and given the group's strong balance sheet, funding is not expected to be an issue.
Our views
Overall, we remain optimistic that the company can achieve another year of strong growth, driven by the full-year contribution from its recent acquisitions (Addison Lee, A2B, CMAC), the commencement of the Manchester bus contract, and continued margin expansion in the UK bus business. These factors should help offset some softness in the local Taxi, Private Hire, and Public Transport segments. We are currently reviewing our forecasts, pending the release of the latest Addison Lee financials. Maintain BUY with TP of SGD1.80
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