ComfortDelgro Corporation Limited (CDG) is a Straits Times Index constituent and one of the world’s largest land transport operator. Its businesses cover the full range of land transport options including bus, taxi, rail, car leasing, automotive engineering, vehicle inspection and testing, driving centres and outdoor advertising.

In the past few years, CDG was in the spotlight for its struggling business performance reeling from intense industry competition with Grab and Uber that disrupted its traditional taxi business that has the largest fleet and market share in Singapore. While it is still the largest taxi operator locally, the size of its taxi fleet has reduced significantly over the past few years, thus negatively impacting its results.

With Uber announcing its exit from Singapore market via the sale of its private hiring and related businesses to Grab, could industry competition start turning benign for CDG and we can expect to see an uptick in CDG’s earnings soon?

Let’s take a look at CDG’s latest quarterly results to find out.

Financial Summary

Source: CDG 2Q 2018 Results Presentation

In the second quarter of 2018, CDG’s revenue had a good showing with 5.4% growth to $941 million. This is contributed by the increase in Public Transport Service Segment that includes bus and rail operations, and new acquisitions, offset by a revenue decrease in Taxi and Automotive Engineering Services segments.

However, Operating Cost increased by a larger clip, causing the Operating Profit to drop 2.1% to $109 million. This is mainly contributed by a rise in Staff Cost from $368m to $403m, and Fuel & Electricity cost from $55.8m to $75.8m. Correspondingly, Net Profit fell by 5.5% to $75 million.

Year-on-year, it seems that CDG’s bottom line is impacted by rising cost although it registered an increase in revenue. However, if we zoom into recent quarters, CDG’s Operating Profit and Profit after Tax and Minority Interest had been growing for past 2 quarters.

Source: CDG 2Q 2018 Results Presentation

Financial Position and Cashflow

For the quarter, CDG paid some of its loans and reduced its borrowings to $309m. While the Cash and Short-Term Deposits decreased, it is not a concern as CDG still has ample cash to cover all its debts as seen from the Net Cash position.

Source: CDG 2Q 2018 Results Presentation

However, CDG saw Net Cash Outflow of $105m this quarter, mainly due to acquisitions, dividend payment and capital expenditure.

Public Transport Services Segment

Revenue from Public Transport Services grew $81.6m to $667.9 m. This is mainly attributed to improved revenue from the following areas:

  • commencement of Seletar Bus Package in Mar 2018
  • operation of bridging shuttle services for early closure and late opening of East-West MRT line.
  • higher ridership at Downtown Line
  • acquisition of Tullamarine Bus Lines and National Patient Transport in Australia
  • increase revenue from the new acquisition in Wales

Taxi Segment

Tazi revenue shrank by $25.1m to $184.7m. Revenue derived from Business-as-Usual fell by $30.1m, while new acquisitions revenue grew $5m.

Overall, the taxi segment is still impacted by a smaller fleet in Singapore. According to an analyst report by Phillip Capital, CDG had 12,535 taxis in its fleet as at end-Q2 2018, 19.4% lower yoy. However, the fleet idle rate in Q2 was 2%, lower than the 3%-5% in 2017 as older taxis were scrapped. Separately, as reported by analyst report by RHB Research, CDG has ordered 1,200 new taxis to replace the older taxis in Singapore, resulting in a net fleet addition of 200-300 vehicles.

On the other hand, CDG’s overseas taxi operation managed to grow its revenue via acquisitions and a more favourable currency exchange rate.

Automotive Engineering Segment

Revenue decreased by $10.7m to $64.9m, due to smaller taxi fleet in Singapore and lower volume of fuel sold to taxi drivers.

Inspection and Testing Services Segment

Revenue decreased by $0.3m to $25.3m due to the cessation of operations in Beijing.

Business Outlook

Management provided outlook guidance in its results announcement. Revenue from the Public Transport Services segment in Singapore is expected to grow, as bus service revenue benefits from the commencement of the Seletar Bus Package from March 2018 and the Bukit Merah Bus Package in 4Q18. Rail service revenue is expected to be higher with full-year operation of Downtown Line 3.

Revenue from the Australia Bus Business is expected to be higher, while UK Bus Business is expected to be maintained. The recent acquisition of new bus businesses in Singapore, Australia and the UK will contribute to overall revenue growth.

As for Taxi segment, it is expected to maintain with stabilisation of taxi operations landscape in Singapore and the recent acquisitions in China, Australia and UK.

Source: CDG 2Q 2018 Results Presentation

Conclusion

CDG has embarked on active overseas acquisitions recently to bolster its future earnings and counter the challenging operating environment for its taxi business in Singapore. Based on the latest quarterly results, Management has guided that these acquisitions are expected to contribute to revenue growth.

On the other hand, while rail revenue is expected to increase due to full capacity of Downtown Line, fare reduction exercise in effective end-2017 and rising operating and maintenance costs will continue to affect the bottom line.

For CDG’s future earnings to grow, it has to control its costs well, make an earnings-accretive acquisition, and most importantly, the taxi industry landscape in Singapore has to improve. Hence it pays for investors to monitor these developments closely in order to make an informed investment decision.


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