Downtown Line 2 to accelerate CDG’s profit growth in 2016

It will boost revenue and offset start-up, operating costs.

Analysts are on the edge of their seats thanks to what is predicted to be a profit-laden year for Comfort Del Gro (CDG)—DTL2 is poised to bolster revenue growth, costs are likely to sink, and a prospective asset divestment is expected lead to overseas acquisitions.

According to OCBC, the launch of revenue service of Downtown Line 2 (DTL2) on 27 December will likely boost revenue growth and offset start-up as well as operating costs. Further, the launch of the DTL, which comprises 12 stations spanning 16.6 km, is expected to have a more significant revenue impact compared to when DTL, which had six stations spanning 4.3km, was launched in 2013.

In addition, while energy savings in FY15 were constrained by CDG’s large hedging positions, it is expected that the transport operator will see more material benefits from lower fuel and electricity costs in FY16 as management guided for lower and more favourable hedging positions for the year.

Lastly, OCBC expects bus divestment to occur in the latter half of 2016 as part of the company’s transition to government contracting model, and believes that LTA will snap up CDG’s bus assets at NBV. The divestment will free up cash flow, which in turn may result to special dividend payout and allow for accretive overseas acquisitions.