ComfortDelGro shrugs off fare cut threat

Its diverse revenue base will keep profits intact.

The looming public transport fare cut will hardly dent ComfortDelGro’s profits, thanks to its diverse base of businesses.

According to OCBC Investment Research, local rail and bus operations only accounted for around 5% and 15-20% of CDG’s total revenue in FY14, respectively.

Although the fare cut will negatively impact the group’s near-term growth, OCBC believes that ComfortDelGro will be cushioned not only by its international revenue streams but also by the upcoming bus government contracting model.

“With GCM to commence from 2H16, the fare cut will have no impact to CDG’s bus revenue contribution since LTA keeps all bus revenue collected while paying CDG a negotiated annual fee for operating public buses. With DTL phase 2 (DTL) slated to commence operations by year-end, a 1.9% fare reduction in FY16 will certainly be negative but unlikely to be significant for CDG,” OCBC said.