ComfortDelGro's earnings to turn up in Q4 onwards as rail riders increase: analyst

Its $138m corporate venture fund and 4.3% fare hike effective December may boost revenue.

ComfortDelGro’s earnings are set to turnaround in Q4 onwards despite Indonesian competitor Go-Jek’s entry into the market thanks to higher contributions from its public transport segment, according to a report by DBS Equity Research.

As per the trend in H1 2018, ComfortDelGro’s public transport segment saw higher contributions on the back of higher mileages operated due to the Seletar Bus package which was launched in March and higher rail ridership, DBS analyst Andy Sim said.

ComfortDelGro’s profits slipped 2% to $78.5m in Q3 from $80.1m in 2017 due to lower dividend from Cabcharge Australia. On the other hand, its revenue climbed 8.5% YoY to $967.9m from $891.7m.

Also read: ComfortdelGro profits dipped 2% to $78.5m in Q3

“As can be seen in Q3 2018 results, whilst still showing YoY decline in profits, this is as per our earlier expectations and it is of a smaller magnitude as that seen in Q1 and Q2 2018,” Sim said.

Whilst challenges due to higher operating and maintenance costs remain for its North-East Line given the ageing network, ComfortDelGro’s rail ridership continued to improve largely following the opening of Downtown Line Stage 3 (DTL3) in December 2017, Sim noted.

In Q3, average daily ridership for DTL was at 472,000 per day which was up from the 437,000 per day recorded in Q2 and 431,000 in Q1.

In addition, the report highlighted that 4.3% hike in public transport fares in Singapore effective 29 December 2018 will further drive ComfortDelGro’s earnings in FY19. Its recent Australian acquisitions which include two Buslink companies and bus operator FCL holdings could yield more earnings for the firm as well.

Meanwhile, Sim noted that ComfortDelGro’s plan to set up a $138m (US$100m) corporate venture fund would not put any strain on the firm’s cash flow and dividend payout ratio as ComfortDelGro will progressively make ‘bite-sized investments’.

“Whilst we do not expect significant near-term earnings impact from this initiative, we believe management is taking a more proactive step in tapping into possible ventures that could benefit the group in the longer term,” Sim said.

The firm’s venture fund which was announced on 9 November will focus on incubation and investments in mobility technologies and solutions to complement the firm’s land transport business.

Sim also highlighted that competition is unlikely to revert to that of Grab and Uber’s with the impending entry of Indonesia’s Go-Jek.

“The total taxi fleet in Singapore has contracted substantially by a quarter since December 2016, and has stabilised at c.21,000 since Q1 2018 which may suggest that a core pool of taxi drivers are reluctant to switch,” Sim said. “In addition, whilst the promotions and incentives by private car hire may be attractive, it could be seen as temporary and could dissipate as fast as the exit of a competitor.”