It has been a rough few years for ComfortDelGro Corporation Limited (CDG). Its stock price fell to S$2.00 in December 2017, down from its peak of S$3.20 in June 2015. This coincided with rising competition from ride-hailing providers, Uber and Grab, which caused a 20% reduction in taxi fleet size for both Comfort and CityCab from 2015 to 2017.
In March 2018, Grab took over the entire Southeast Asian operations of Uber. There were mixed views on CDG with regards to Uber’s exit from the Singapore market. But it’s been evident that CDG has been a benefactor as it curbed the reduction of its taxi fleet and saw its stock price rebound from its low in 2017.
So is the worst over for CDG? Will it emerge a stronger entity in the coming years? In this article, I’ll bring an update on CDG’s latest financial results, and its recent efforts to recover from setbacks and sustain growth for the future. Here are 13 things to know about ComfortDelgro before you invest.
Segmental performance
1. CDG’s Public Transport segment comprises the operation of the Northeast and Downtown MRT lines in Singapore and the operation of buses in three countries — Singapore, Australia and the UK. As CDG’s largest income contributor, this segment generated S$2.39 billion in revenue and S$179.0 million in profit in 2017. It is also a major growth driver: CDG expanded its bus fleet and recorded increasing ridership for the Northeast and Downtown lines.
2. CDG is the largest taxi operator in Singapore with over 12,000 taxis under Comfort and CityCab. In addition, it runs ComCab in London, Liverpool, and Aberdeen in the UK; Swan Taxis in Perth, Australia; and a portfolio of taxi operations in Beijing, Shenyang, Chengdu, Jilin, Shanghai, Suzhou, Nanjing, and Nanning in China. CDG’s taxi division has achieved consistent growth in both sales and profits from 2008 to 2016. In 2017, it reported a drop in revenue and profit to S$1.21 billion and S$135.1 million respectively. This was mainly caused by a reduction in its taxi fleet due to competition from ride-hailing services.
3. CDG’s Automotive Engineering Services (AES) segment is involved in maintenance of its taxi fleet in Singapore. Due to reduction in the size of its taxi fleet, this segment reported S$171.1 million in revenue and S$33.9 million in profit in 2017 — the lowest since 2012.
4. CDG’s Inspection & Testing Services (ITS) segment is mainly operated under Vicom Limited in Singapore. In addition, CDG has two vehicle testing services companies in Beijing and Malaysia. Overseas revenue from the ITS segment is relatively insignificant. In 2017, the segment reported S$100.7 million in sales and S$32.6 million in profit, thus continuing its downward trend since 2015. This is due to higher vehicle deregistration numbers where more commercial vehicles and taxis have been taken off the roads in Singapore.
5. CDG also derives other sources of income from businesses which include driving centres, car rental & leasing, and outdoor advertising on bus and rail assets mainly in Singapore. Combined, they brought in S$99.0 million in revenue and S$28.6 million in profit in 2017.
Group results
6. As a result, CDG reported a small dip in group revenue to S$4.0 billion in 2017. The marginal fall in revenue was caused by lower revenue contributions from the Taxi, AES, and ITS segments. Over the past 10 years, CDG has maintained its net profit margins at about 7%. Thus, its shareholders’ earnings have increased steadily from S$200.1 million in 2008 to S$301.5 million in 2017.
7. From 2008 to 2017, CDG generated S$6.3 billion in operating cash flow. Out of which, it has:
- Invested S$4.0 billion in net capital expenditures
- Paid off S$421.8 million in net long-term debt
- Paid out S$1.5 billion in dividends to shareholders
CDG increased its cash balance during the period from S$408.3 million in 2008 to S$596.2 million in 2017. CDG is a stable cash-generating business and does not need to continually raise debt or equity to expand its businesses or reward its shareholders with dividends.
Growth drivers
8. CDG spent S$450 million in a series of acquisitions mainly to expand its bus fleet in Australia. In total, the acquisitions doubled CDG’s fleet of buses, coaches, taxis, and ambulances to 4,300 in Australia. Other acquisitions increased its portfolio of taxi businesses in Shenyang, China and the UK. Overall, CDG remains one of the largest land transport companies in the world with a total fleet of over 43,000 buses, taxis, and rental vehicles.
| Date | Acquisition | Country | Acquisition Cost |
|---|---|---|---|
| 5 Nov 2018 | Buslink Pty Ltd | Australia | S$187.0 million |
| 7 Aug 2018 | FCL Holdings Pty Ltd & 2 Depot Sites | Australia | S$135.8 million |
| 19 Apr 2018 | Dial-a-Cab Limited | UK | S$2.2 million |
| 12 Apr 2018 | Tullamarine Bus Lines Pty Ltd | Australia | S$35.8 million |
| 10 Apr 2018 | AZ Bus Pte Ltd | Singapore | S$10.3 million |
| 9 Apr 2018 | National Patient Transport Pty Ltd | Australia | S$30.2 million |
| 7 Feb 2018 | New Adventure Travel Ltd | UK | $ 25.0 million |
| 5 Feb 2018 | Shenyang Tian Wei Taxi Co. Ltd | China | S$15.0 million |
9. On 9 November 2018, CDG announced it would set up ComfortDelGro Capital Partners – a venture capital fund with a seed capital of US$100 million. The fund will focus on incubation and investments in mobility technologies and solutions that complement CDG’s land transport business and address the impact of disruptive challenges to CDG’s land transport business.
10. CDG expects growth in revenue from its Public Transport segment. The growth will come from a 4.3% fare hike that would come into effect from 29 December 2018 onward, and new revenue contributions from Selector Bus Package, Bukit Merah Bus Package , and Downtown Line 3.
Valuation
11. P/E ratio: Over the last 12 months, CDG made 12.91 cents in earnings per share. Based on CDG’s current stock price of S$2.16 (as at 11 January 2019), its P/E ratio is 16.73, slightly above its 10-year average of 16.09.
12. P/B ratio: CDG has net assets per share of S$1.19 as at Q3 2018. Thus, its current P/B ratio is 1.82, which is below its 10-year average of 2.03.
13. Dividend yield: Over past 12 months, CDG paid 10.4 cents in dividends per share. Thus, its dividend yield is 4.81% — higher than its 10-year average of 3.70%.
The fifth perspective
ComfortDelGro has delivered stable financial results and growing dividends to its shareholders over the last 10 years. However, intensifying competition from ride-hailing services like Uber and Grab have threatened to disrupt its core business. The management was quick to acknowledge the disruption and invested US$100 million to explore new mobility technologies and solutions to mitigate the impact.
Currently, ComfortDelGro is fairly valued based on historical averages and its Public Transport segment continues to post stable results. However, the threat of disruption in the taxi industry can’t be ignored and remains a long-term concern.
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