ComfortDelGro is a leading multi-modal transport operator, formed through the merger of two land transport companies, “Comfort Group” and “DelGro Corp.” in March 2003. Post merger, ComfortDelGro has expanded significantly and now operates in 13 countries, with a global fleet of about 45,000 vehicles, 343 km of total rail network, and employs around 22,600 people.

In 1H24, the company generated 71.6% of its sales from Public Transport, followed by Taxi / Private Hire (PHV) 15.5%, Other Private Transport 8.2%, Inspection & Testing Services 2.6%, and Other Segments 2.2%. Geographically, Singapore contributed major share of revenue at 53.7%, followed by UK/Ireland at 25.9%, Australia at 18.0%, and China at 2.4%.

Growing demand for premium services

ComfortDelGro Taxi is expanding its premium transportation offerings by introducing new Toyota Alphard Hybrid taxis with limousine-style service. This move aligns with the company’s strategy to meet the growing demand for premium transportation services. The Toyota Alphard Hybrid joins ComfortDelGro existing fleet of limousine taxis, which includes the Mercedes Viano, Toyota Vellfire, Mercedes E-Class, and Lexus ES300 models. The company is adding a total of 40 such models to its fleet, and that it expects another 40 to be delivered by the end of 1Q2025.

Improved financial performance

ComfortDelGro posted a steady increase in revenues over the last three years, delivering a CAGR of 6.2% to S$3.88bn. The company’s adjusted operating profit grew at a CAGR of 13.6% over the same period, reaching S$266mn. The net profit recorded an even much better performance, with a CAGR of 43.7% to S$181mn in 2023, driving 3x jump in EPS to S$8.3 cents from S$2.81 cents. Additionally, the company generated a cumulative FCF of approximately S$655mn, over the last three years. Consequently, the debt levels have reduced considerably from S$741mn at the end of 2020 to S$528mn at the end of 2023, indicating improved leverage ratios during the periods, with the Debt / Equity ratio declining from 0.24x in 2020 to 0.18x in 2023.

ComfotDelGro posted a fifth quarter of continuous YoY earnings improvement, reflecting the group’s concerted effort to strengthen its core businesses and ensure profitable overseas growth. In the first half of 2024, revenue stood at S$2.12bn, marking a 13.7% YoY increase, amid higher overseas revenue contribution of 46.3%, compared to 41.8% in 1H23. This increase was mainly due to the acquisition of CMAC Group in the UK and A2B Australia. Net profit is reported at S$95.3mnn, a 21.4% YoY increase driven by improved margins secured through public bus contract renewals in the UK.

Reasonable valuation with attractive dividends

Considering the robust fundamental performance, ComfortDelGro appears to be trading at reasonable valuation levels compared to its historical average. The stock is currently trading at a P/E ratio of 14.3x based on estimated 2024 EPS of S$0.098, compared to its 10-year historical average of 17.8x. The company’s EV/EBITDA multiple also yields a lower valuation of 4.2x based on the projected 2024 EBITDA of S$684mn, compared to the 10-year historical average of 5.2x. Additionally, over the next three years, analysts forecast a CAGR of 7% for the top-line, reaching S$4.7bn, while EBITDA is projected to grow at CAGR of 8%. EBITDA margins are anticipated to reach 16.7% in 2026, an expansion of 50bps over the next three years.

Furthermore, the company has declared an impressive interim dividend of S$3.52 cents in 1H24, with an 80% payout ratio and a dividend yield of 5.3%. Analyst’s projects dividend yields to stay in the range of 5-7% over the next three years, making it much more attractive investment case. ComfortDelGro stock has delivered modest returns of over 11% in the past one year. Out of the total 9 analysts covering the stock, 6 have given a ‘Buy’ rating, with an average target price of S$1.72, indicating an upside potential of 17.4%.

Overall, from a long-term perspective, the company appears to have a strong foothold in the global mobility market, considering its continued focus on strengthening core businesses and expanding into overseas markets. The fundamentals should be further supported by the acquisition and integration of A2B and CMAC with the company. However, key risks include inflationary cost pressures on public transport services, higher-than-estimated operating costs, regulatory changes and weak taxi earnings from a failure to gradually phase out rental rebates.