ComfortDelGro aims to gain 70% revenue from overseas venture

Phillip Securities Research reported, CDG expects to counter challenges in Singapore land transport market by exploring business abroad.

CDG’s efforts to grow its businesses beyond Singapore could lead to significant earnings growth in the future. It also reduces their dependency on the Singapore market, which has a limited scope for land transport growth.

CDG’s rail system serves the populous areas in the North-East of Singapore. They expect continued population growth to increase ridership for their rail business.

Exposure to energy cost is a typical concern of investing into transportation businesses. However, they believe that CDG is less exposed to potential energy price increase than its peers due to their diversified businesses and varied business models.

Philip Securities Research observed sustainable profitability at some of CDG’s overseas subsidiaries, which they believe could be attributable to a protected competitive position.

They expect CDG’s bus business to be affected by the growth of rail network in Singapore. Plans to extend Singapore’s rail network to 270km by 2020 is likely to result in significant cannibalization of ridership from bus operations. With a 75% market share, they foresee long term challenges for CDG’s public bus operations in Singapore. CCL’s full opening at the end of 2011 will be the near term headwind for the company.

While they are supportive of its venture overseas, they believe that there are inherent challenges and risks in growing their businesses overseas.