Transport operator ComfortDelGro C52 may not have fully recovered from the pandemic, yet it is actively expanding into new overseas markets
As one of the Republic of Singapore Air Force’s senior commanders, Cheng Siak Kian helped defend the country’s skies, working as part of the military arm with air defence weapons and more than a hundred fighters, bombers and helicopters.
Now as the managing director and group CEO of ComfortDelGro, he supervises about 34,000 vehicles, including buses, taxis, rental vehicles and 210km of rail networks across ComfortDelGro’s operations in seven countries.
He is spearheading change in an organisation with diverse goals: Managing Singapore’s largest public transport fleet, expanding overseas ventures, facilitating the country’s shift to electric vehicles (EVs) and ensuring returns for shareholders, mainly foreign asset managers who are presumably more focused on profits than providing a public good.
The company, among the hardest hit by the pandemic, is now clearly rebounding, as evidenced by its FY2023 ended December 2023 earnings released on Feb 29. Moreover, it is not merely aiming to recover from the pandemic and protect its main operations domestically.
Wielding a cash-rich balance sheet, it has stepped up its spate of overseas acquisitions, further expanding its presence in the likes of Australia and the UK, possibly lifting the proportion of non-Singapore operating profit to above 42.6% of the total reported for FY2023, up from 41.9% in FY2022.
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Since last year, ComfortDelGro has made three acquisitions. In March 2023, it acquired UK private hire business Vedamain for GBP7.25 million or $11.82 million. In December 2023, it announced plans to acquire the remaining 90.75% of the shares it does not own in Australia-listed taxi network and technology and payment solutions provider A2B for A$165.1 million ($144.9 million) or A$1.45 per share. The deal is pending approval and is expected to be completed in April.
On Feb 13, ComfortDelGro announced it had bought UK-based ground transport management and accommodation network specialist CMAC Group for GBP80.2 million or $135.4 million.
These acquisitions are on top of several transport operating contracts ComfortDelGro has either won or renewed. For example, in August 2021, ComfortDelGro won a $1.13 billion contract to run the rail services in Auckland. This marks its first overseas rail operation contract as ComfortDelGro’s separately listed subsidiary, SBS Transit, already operates the Downtown Line and the Northeast Line. In August 2023, ComfortDelGro won a deal to run rail services in Paris for up to nine years in partnership with two local partners, RATP Dev and Alstom.
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On Jan 24, ComfortDelGro, via a joint venture, won the contract to operate Stockholm’s metro system for 11 years. In July 2023, ComfortDelGro won a tender worth more than A$200 million to operate bus services in New South Wales, bringing the recent contract wins in Australia’s most populous state to more than A$1.9 billion. In this current FY2024, ComfortDelGro is gunning for other contracts. These include the Greater Manchester bus package in the UK and the Seletar bus package, and the Jurong Regional and Cross Island Lines here.
Interestingly, ComfortDelGro is not the only Singapore entity interested in Australia. On Feb 5, Keppel Infrastructure Trust A7RU (KIT) announced that it was taking a 98.6% stake in Ventura Motors, Victoria’s largest bus service provider, for an enterprise value of around $540 million.
When asked, Cheng declined to comment about what KIT did but noted that ComfortDelGro already has “several” bus contracts in the same state, where the company has been operating for more than 15 years with a fleet of about 700 vehicles. “We have quite several contracts that we are bidding for and have won. In Victoria, we are already operating in Melbourne and the surrounding parts of Melbourne,” says Cheng.
For ComfortDelGro, the decision-making process related to acquisitions all boils down to its overall strategy. “[It’s] essentially about defending our core markets and business that we’re in [and] expanding them. Lastly, [our strategy also includes] developing new capabilities,” he adds.
For instance, CMAC is a business somewhat adjacent to its existing operations and could be “useful” for ComfortDelGro. In addition to its UK headquarters, CMAC operates in several European cities, providing last-minute emergency transfers and booking services using technology. Some of its services include transporting and accommodating passengers whose flights have been delayed or disrupted.
Similarly, full control of A2B will help grow ComfortDelGro’s multimodal business in Australia, which is similar to what it has been doing in Singapore. “We are operating buses now and bidding for rail contracts. That is the plan,” explains Cheng.
New substantial shareholders
Singapore Inc has seen such an active overseas expansion previously as government-linked companies are encouraged to help grow an external wing of the economy within the limited confines here. Singapore Telecommunications Z74 was one of the earlier movers in acquiring businesses overseas, including Australia’s second-largest mobile operator, Optus, in 2001; Singapore Post S08 , facing the structural decline of its domestic mail business, is also actively snapping up logistics businesses in Australia.
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ComfortDelGro used to be majority-owned by the Singapore Labour Foundation after the company was formed in 2003 with the merger of two separately-listed public transport entities. Its top shareholders today are a clutch of overseas asset managers. As of March 6, the largest, with a 7.05% stake, is UK-based Silchester International Investors, which became a substantial shareholder last November and has further increased its stake to more than 152.75 million shares on Jan 29 by acquiring 1.97 million shares from the open market at $1.3891 each. Ameriprise Financial follows Silchester at 5.26%, Invesco at 3.27% and The Vanguard Group just a shade lower at 3.26%. Norges Bank, Norway’s sovereign wealth fund and the world’s largest equities manager, ranks in the top five with a 1.6% stake.
Cheng maintains that the management’s focus has remained the same despite the ownership changes. “Ultimately, we work based on what is in the best interest of the shareholders. That won’t change.”
Still, ComfortDelGro has succeeded in testing the patience of some investors over the past few years. From a peak of just over $3 in June 2015 when it offered a high dividend yield, strong cash flows and stable business, the share price trended down to a 20-year-low of $1.03 last June as investors were uncertain if ComfortDelGro could recover from the pandemic. The market was also wary of how ComfortDelGro’s core Singapore taxi business had shrunk as Grab Holdings and other ride-hailing apps are allowed to operate here.
On Feb 13, the Land Transport Authority (LTA) revealed that about 12% of point-to-point trips were street hailed in November 2023, down from 22% in January 2021, which was the year that LTA first began providing this information.
Likewise, the figures by LTA reveal that the number of taxis in Singapore — the only provider of private hire vehicles allowed to accept street hails — stood at a 13,622 in November 2023, down from the 15,888 reported in January 2021 and lower than its peak of over 28,700 at its peak in 2014.
“While the point-to-point industry landscape continues to evolve, the taxi industry continues to be an important aspect of the point-to-point sector,” says Cheng.
“Our cabbies provide an important, reliable and trusted service that also caters to many niche aspects of point-to-point travel. For example, street hailing which is still preferred by many tourists and older passengers who do not use ride hailing apps, such conveniences are not provided by private hire vehicle providers,” says Cheng.
“Beyond growing and strengthening the taxi business in Singapore, we are also looking for good businesses to acquire overseas, whether in the UK or Australia. We believe that taxis will have an important role to play in the various markets we are in. So, we will continue to focus on enhancing the customer experience and building the best value for our consumers,” he adds.
In the past year, along with the earnings recovery shown for its 1HFY2023, ComfortDelGro’s share price has recovered somewhat but is still a long way from the pre-pandemic levels of more than $2.
At its 1HFY2023 results briefing, Cheng addressed questions on the underperforming shares. He maintained that ComfortDelGro has a base of loyal shareholders, who have remained with it for many years due to its “reliable, absolute yield returns” as they appreciate how ComfortDelGro is a recession-proof provider of essential public transportation.
In the four years leading to and including FY2019 before the pandemic, ComfortDelGro had maintained its annual total payout at around 10 cents. This plunged to 1.43 cents for FY2020 and 4.2 cents for FY2021 before recovering to 8.48 cents for FY2022, which included a special payout from the sale of a UK property. For the latest FY2023, ComfortDelGro plans to pay a total dividend of 6.6 cents, representing a payout ratio of 80%.
During his interview with The Edge Singapore on Feb 29, Cheng reasons that ComfortDelGro’s valuation is a case of how its shareholders view it. “We have been a recovering story. The share price in the past year reflects the recovery of that story that we’re in now,” he says, referring to the gain of around 14% in the past 12 months.
He adds: “I think that going forward, we will continue to see that hopefully, when they see the results, hopefully when they see us executing the strategy and the outline, then they will have a better assessment of where we are, and our valuation can then better reflect what the value of our stock should have.”
