• Still BUY and SGD1.65 TP, 15% upside and 5% FY24F yield. Despite a seasonally soft 1Q24, PATMI rose 24 YoY%. We expect ComfortDelGro’s many units to continue seeing YoY improvements ahead on higher local rail revenue, continued improvements in UK public transport revenue, better taxi earnings here, improvement in its China taxi wing, and contributions from newly announced acquisitions. We see a favourable final review of point-to-point or P2P transport sector regulations and new tender wins as re-rating catalysts. Our TP includes a 6% ESG premium to CD’s SGD1.55 FV.

• Seasonally weak 1Q24 results. 1Q24 revenue stood at SGD1bn (+10.8% YoY, -1.6% QoQ) while EBIT came in at SGD55.2m (+10.2% YoY, -28% QoQ). Two of CD’s largest businesses, public transport (PT) and taxi & private hire (TPH), registered strong YoY growth in revenue and EBIT. The company maintains (and we believe) that the business will continue to improve in the coming quarters, as 1Q24 historically tends to be a seasonally weak quarter. 1Q24 PATMI of SGD40.6m (+23.8% YoY, -22.1% QoQ) accounted for 19% of our and consensus 2024F earnings. In 2023, 1Q PATMI accounted for 18% of the full-year number. Seasonal weakness is usually caused by lower bus frequencies in the UK and a lower take-up of taxis in China amidst the Lunar New Year celebrations. 1Q24 TPH EBIT margin came in a bit below our expectations, as an increase in competition from TADA, a ride-hailing player, led to a YoY decline in bookings.

• Better 2H expectations. We expect improvements for the rest of the year to be visible in the China taxi business, which has yet to recover to pre-COVID- 19 levels. The UK bus business, which tends to be seasonally soft in 1Q, should see margins recovery on the back of bus service fee indexation. Contributions from the recently acquired CMAC Group (CMAC) should improve, as 1Q tends to be seasonally soft for its business as well. In 1Q24, CMAC contributed SGD28m and SGD1m in revenue and EBIT. We continue to see healthy improvements in SBS Transit’s (SBST) rail ridership. In addition, it is expected that SBST could see a moderation in operating costs towards the end of 2024 amidst lower electricity costs – this is as its existing contract gets renegotiated.

• More M&A could be on the horizon. CD said it has a borrowing headroom of SGD1.2-1.7bn based on a notional 20–30% net gearing, allowing it to undertake more earnings-accretive M&A in the near future. In 2024, it completed the acquisitions of: i) Taxi operator A2B Australia (in Apr 2024) and ii) ground transport management specialist CMAC (in Feb 2024). The acquisition of CMAC was funded by debt. Key risks: i) Higher-than-estimated operating costs and ii) weak taxi margins from sustained competitive pressures.

Source: RHB Research - 16 May 2024