Market scepticism on sustained double-digit growth unwarranted. While concerns exist, we believe ComfortDelGro Group (CD) can sustain double-digit earnings growth of 14% y/y in FY25F following a robust growth of 17% in FY24. To support our view, we have dissected the performance of each business segment and outlined our outlook for 2025, highlighting factors contributing to the continued strong performance. Notably, international EBIT contribution for FY25 could for the first time return to FY16’s level (Chart 1).

Was Addison Lee a good purchase?
CD completed the Addison Lee (AL) for a sizable SGD460mn on 7 Nov 24, raising questions whether this was a prudent investment. To address this, we examined the (i) industry dynamics, (ii) strategic fit, and (iii) transacted valuation.

Industry Dynamics
UK point-to-point industry showed robust recovery and improved profitability in 2023, trends that are expected to continue through 2025. Post-pandemic recovery saw the industry shift from losses to profitability, with most players returning to positive earnings in 2023 (refer to Table 1). We anticipate this momentum will persist, driven by accelerating GDP growth and easing inflation in 2024 and 2025.
Chart 1: International EBIT contribution has steadily declined over the years, but saw a sharp recovery in 2024 with new acquisitions, and is poised to return to FY14’s level of contribution in FY25



Source: Company


B2B P2P business has higher margins, indicative of less intense competition. While the P2P market remains highly competitive, the B2B segment offers significantly better profitability. For example, Gett, whose B2B contribution rose from 61% in FY22 to 76% in FY23, reported a superior operating margin of 3.6% in FY23, improving substantially from -24% in FY22. Similarly, AL, with over 70% of its revenue from B2B, is positioned favourably for margin expansion. (refer to Table 1 for more details)

Current margin in B2B likely sustainable on potential high entry barrier. Uber has entered the B2B market through Uber for Business, however, competition remains relatively mild. AL’s established relationships with corporate clients (built over 50 years) and effective strategic execution. It has rolled out more than 1k electric vehicles and acquired ComCab, CD’s black cab business, in 2021, which likely improved its value proposition to businesses and contributed to its superior margins compared to peers. Given these factors, we believe AL’s current margins (11.3% in FY24) could be sustainable.


Legal risk appears manageable despite recent tribunal ruling. The UK courts have typically sided with drivers on matters relating to minimum wages and employment benefits, with AL recently losing its case (Afshar and others v Addison Lee Limited). We estimate claims to be around GBP7mn based on the quoted GBP10k per driver compensation for the approximately 700 drivers involved, comfortably within AL’s GBP12mn provision. While there could be a cash outflow to settle the claims, we believe investors are unlikely to see a sudden significant exceptional expense to resolve these claims with potential for write-back. In addition, AL’s option to appeal the ruling remains open.

Overall, we view the AL acquisition as sensible, considering the favourable industry dynamics and AL’s market-leading position in the B2B segment.

Strategic fit
AL operates within the familiar land transport sector, offering clear synergies with CMAC. Both AL and CMAC focus predominantly on B2B services, presenting opportunities for cross-selling due to overlapping client lists. Their shared presence in the UK further enables consolidation of operating expenses such as office space, sales, and marketing costs.
Table 2: Addison Lee’s performance forecast points to significant FY25F contribution at GBP27mn (~SGD47mn)


Valuation
The acquisition valuation, while not exceptionally low, is reasonable. Compared with CD’s current valuation at 14.5x TTM P/E and 12.9x EV/EBIT at the last traded price of SGD1.46, AL’s estimated transaction valuation at 13.7x PE and 10.3x EV/EBIT (on normalised and debt-free basis) appears attractive.

What can we expect from Addison Lee?
Expect FY25F EBIT contribution of SGD47mn, on conservative 3% top-line growth and slight margin expansion. We believe the SGD4mn (~GBP2mn) contribution in FY24 should not be used a proportionate indication of AL’s full year performance as management has indicated that 4Q is seasonally soft being the holiday season i.e., less corporate activities. As such, we based our projections on past full year financial results. While the company has indicated 4.8% market growth for the next 5 years, we took a conservative view of 3%, in line with the growth rate in FYAug24. In addition, we assumed a modest operating margin expansion from 11.2% to 11.5%. (Refer to Table 2 for more details).
What are the other areas of growth?
UK public transport to be powered by new, higher-margin contracts and Manchester expansion. As highlighted in our earlier report (Underappreciated international expansion), we expect new and renewed contracts to continue driving revenue growth and margin expansion in FY25F. The Manchester contract, which commenced on 5 Jan 25, could contribute an additional SGD144mn annually. Assuming an operating margin of 5%, EBIT from UK public transport could rise significantly by SGD27mn, reaching SGD60mn in FY25F (vs. SGD33mn estimated for FY24).

A2B set for modest full-year contribution in FY25F. Given that the A2B transaction was completed only in April 2024, an additional quarter’s earnings will boost FY25F performance. We forecast revenue growth at 25% in AUD terms, translating into 19% growth in SGD due to AUD weakness. With slight margin improvements, we expect A2B to deliver a modest SGD3mn EBIT increase.

Which operations do we see as potentially challenging?
We believe the Singapore Taxi and Private Hire segment is likely to face significant earnings pressure due to commission waiver.

Singapore Taxi and Private Hire
Tada reshaping domestic P2P market dynamics. The Singapore P2P transport market remains fundamentally robust, benefiting from sustained growth in volume and pricing (see Chart 2 and Chart 3). However, Tada’s platform-fee-only model has resonated strongly with drivers, disrupting traditional market dynamics and shifting revenue allocation away from incumbent operators towards drivers. We believe Tada has significantly increased its market share, positioning itself closely behind market leader Grab.

Commission waiver likely to persist. The company initially waived commissions from 4 Dec 24 to 28 Feb 25, later extending this waiver until 31 May 25 due to positive booking growth. Given competitive pressures, we anticipate that the commission waiver will remain in place for the foreseeable future. This strategy may help the company regain market share but will weigh on profitability.

Expect Taxi & Private Hire segment FY25F EBIT contribution to decline by SGD21mn due to reduced operating margins. We estimated commission revenue in FY24 at SGD33mn, which will be absent in FY25F due to the ongoing commission waiver. Although platform fees will increase from SGD0.70 to SGD1.10 alongside higher booking volumes, we believe this increment will not fully offset the lost commissions. Additional expenses, including CPF contributions for drivers, will further compress margins.



Overall earnings outlook
Trimmed FY25F earnings by 2%. We have adjusted our FY25F earnings forecast downward by 2%, as softer Singapore performance and increased interest costs partially offset the strong international performance. Despite this adjustment, EBIT growth remains strong at 19% y/y, driven by AL and UK bus contributions (Refer to Chart 4 for breakdown). Earnings growth is expected at a slightly lower 14% y/y due to higher debt levels, partially offset by an assumed decrease in effective interest rates from 4.5% in FY24 to 4% in FY25F.

Potential upside from reinstatement of commission. If the company reinstates the 7% commission from June 2025, our preliminary estimates suggest an EBIT uplift of approximately SGD13mn, translating to around SGD11mn at the net profit level, or about 5% upside to our FY25F forecast.


Valuation
Reiterate BUY, TP: SGD1.80. With only a marginal 2% downward revision to FY25F earnings, the overall growth trajectory remains intact, with robust earnings growth of 14% y/y in FY25F following 16% growth in FY24. Valuation remains attractive, supported by a compelling PEG ratio and dividend yield relative to industrial peers. Our TP remains at SGD1.80, backed by a higher blended valuation of 1.3x PB ratio and 5.4x EV/EBITDA, reflecting a 1S.D. premium to its 5-year historical average.