DBS Group Research and Maybank Securities have maintained their “buy” calls on ComfortDelGro C52 (CDG) with unchanged target prices of $1.80 and $1.60 respectively. These positive outlooks follow CDG’s recent development of gaining momentum in its overseas expansion.
CDG, on March 28, announced that it has successfully acquired contracts in the UK for the next five years. These awarded contracts allow CDG to operate four public bus services in Manchester under their UK unit Metroline. Worth GBP422 million ($720 million), the contracts expand CDG’s London portfolio by 30%, making the transport operator the fourth largest scheduled bus operator in London.
“The Great Manchester win further strengthens CDG’s public transport presence in the UK, where the economics for operators have turned positive with easing inflation and rational bidding prices,” says the team at DBS.
Based on the annual contract value of $144 million and taking the 25% UK corporate tax rate and an estimated 5% - 10% operating margin into consideration, DBS anticipates a rise in earnings contribution to between $5.4 million to $10.8 million from FY2025. This translates to an upside of 2.2% - 4.3% to DBS’s current FY2025 earnings estimate.
To Maybank analyst Eric Ong, CDG’s recent wins - including CDG’s March 25 announcement about A2B Australia’s shareholders giving the green light for the former to acquire their company - are positive factors.
Accordingly, the analyst has raised his earnings per share (EPS) estimates by 2% - 4% for the FY2024 - FY2026 following these “positive” developments in CDG’s overseas expansion and acquisitions.
“Looking ahead, CDG will continue to seek other new bus franchise opportunities in the Northwest and across the UK,” Ong writes.
For instance, CDG, on Feb 13, acquired the UK-based CMAC Group in February, aligning with CDG’s ongoing efforts to seek more bus franchise opportunities in the UK. CMAC Group, a ground transport management and accommodation network specialist, covers operations across several European countries. The organisation focuses on resolving travel disruptions, providing emergency passenger support for an estimated 3 million travellers annually.
“As a key player in providing wide-ranging emergency passenger transport services to businesses, CMAC is complementary to CDG’s operations in the UK/Europe, and expands its B2B offerings in the region,” adds Ong.
See also: RHB still upbeat on ST Engineering but trims target price by 2.3%
This steady momentum of mergers and acquisitions prove beneficial in driving earnings growth in the analyst’s view. After the completion of the deal with CMAC Group in mid-February this year, revenue from this acquisition began contributing shortly after. In A2B’s case, the transaction is slated to be completed in April 2024.
“Management sees A2B as an excellent strategic fit that will allow CDG to grow its point-to-point offering and deepen the group’s presence in the Australian market as a multi-modal mobility operator,” Ong elaborates.
OCBC keeps ‘hold’ call with higher target price
Meanwhile, Ada Lim from OCBC Investment Research (OIR) has maintained her “hold” call on CDG while raising her target price from $1.40 to $1.49.
The revision of target prices can be attributed to the presence of near-term earnings growth drivers such as rising taxi fares and greater commission fees from 5% - 7% within the Singapore private hire vehicle (PHV) business.
“We expect CDG to continue to bid for new rail contracts (such as the Cross-Island Line in Singapore), and to actively seek out accretive acquisition targets to make inroads overseas,” adds Lim.
As of now, the analyst recognises that CDG’s consensus forward 12-month dividend yield of 5.5% is promising within the Singapore market.
For more stories about where money flows, click here for Capital Section
Despite these ongoing positive developments of acquisitions and contract wins, Lim notes that a more “meaningful” catalyst for the stock is needed before a re-rating occurs. The analyst remains patient, waiting for more calculated initiatives and targets related to CDG’s long-term growth before re-rating.
UOB Kay Hian maintains ‘buy’ call with increased target price
UOB Kay Hian analysts Llelleythan Tan Yi Rong and Heidi Mo have maintained their “buy” call on CDG, raising their target price from $1.58 to $1.66.
They note that CDG has had a “strong” start to 2024. CDG’s rail ridership in January and February this year exceeded 2019 pre-pandemic levels, increasing by 5.3% y-o-y in February. This increasing trend in rail ridership is expected to continue into March.
Together with the implementation of higher rail fares in December last year and growing margins from current UK bus contract renewals, this could be beneficial in increasing 1QFY2024 profitability for CDG.
Tan and Mo also point out that CDG’s taxi segment is “benefitting from the new norm” of ride-hailing.
Ride-hailing is on an uptrend, reaching a high of 87.7% of total point-to-point (P2P) average daily trips in January 2024 in Singapore.
With this upward momentum of street-hailing trips together with an increased 7% taxi booking commission rate, this would prove advantageous to CDG’s taxi segment.
Shares in CDG closed 2 cents higher or 1.43% up at $1.42 on April 1.
