• 9M25 revenue was within expectations, but net profit was below. Revenue/PATMI were 77%/68% of our FY25e forecast. Underlying net profit rose 2.5% YoY to S$57.2mn. Most divisions were performing weaker than expected due to soft macro conditions in the UK, driver shortages in Australia, and a sharper contraction in the Singapore taxi fleet.
• UK continues to deliver the growth with operating profit in 3Q25 rising 48% to S$32.7mn (or up 18% excluding acquisitions)—repricing of London bus routes to higher margins supported growth. CMAC's contribution was weaker due to fewer travel disruptions.
• We reduce our FY25e forecast by 8% to S$213.7mn as we lower operating margins and raise interest expenses. Our DCF target price is lowered to S$1.62 (prev. S$1.68) and ACCUMULATE recommendation is maintained. London bus repricing, resolution of Australian driver shortages, and new Manchester bus and Stockholm rail contracts will drive earnings growth for Comfort. Growth will be offset by a decline in taxi and bus profitability in Singapore.

• 1H25 revenue was within expectations, but net profit was below due to amortisation of acquisition intangibles. Revenue/PATMI were 46%/40% of our FY25e forecast. Acquisitions and repricing of London bus routes drove underlying earnings growth of 7% YoY to S$99mn in 1H25. Interim dividend rose 11.1% YoY to 3.91 cents.
• UK operating profit in 1H25 spiked 3-fold to S$33.9mn due to the acquisition of Addison Lee taxi and repricing of London bus routes. However, part of the earnings growth was offset by higher interest expense and amortisation of intangibles acquired.
• We lower our FY25e earnings forecast by 7% to S$231mn to incorporate the non-cash amortisation expense and higher interest expense. Our DCF target price of S$1.68 is unchanged. We lower our recommendation from BUY to ACCUMULATE due to recent share price performance. ComfortDelGro is delivering stable growth through re-pricing of contracts, acquisitions, and new contracts. We expect a stronger 2H25 earnings driven by seasonally stronger CMAC and continued repricing of London bus routes. FY26 earnings will be supported by contributions from recent contract wins, namely Manchester bus and Stockholm rail.

• 1Q25 results were within expectations. Revenue/PATMI was 24%/20% of our FY25e forecast. 1Q is typically a seasonally lower due to lower contributions from Scotland coach services and CMAC.
• 1Q25 operating earnings rose 45% YoY to S$81.5mn. Excluding acquisitions, operating earnings rose 27.5% YoY, due to a significant turnaround in the UK. Operating earnings spiked from S$0.9mn to S$8mn with the renewal of London bus routes and the contribution from the new Metroline Manchester contract.
• We maintain our FY25e forecast and DCF target price of S$1.68. Our BUY recommendation is unchanged. ComfortDelGro is delivering more stable and visible growth with acquisitions, new and re-pricing of bus contracts in the UK. The dividend yield of 6% is attractive as the company maintains a high payout ratio of 80%. 

• FY24 results beat expectations. Revenue/PATMI was 104%/112% of our FY24e forecast.  UK operating profit spiked 4-fold to S$18mn from the renewal of higher margin bus contracts and acquisition of CMAC and Addison Lee.
• Excluding acquisitions, we estimate operating earnings declined 3% YoY in 4Q24 to S$77.3mn. Weakness was largely in the China taxi and the Singapore rail operations. Dividends per share rose 16.7% YoY to 7.77 cents, as the company continues with its aggressive 80% payout ratio. ComfortDelgro pays an attractive forward yield of 6.4%.
• We raised our FY25e revenue and PATMI by 4%/9% respectively. Our DCF target price has been increased to S$1.68 (prev. S$1.63) and we upgrade our recommendation to BUY from ACCUMULATE. Growth drivers in FY25e include the Addison Lee acquisition, improving Singapore rail earnings, expanding UK bus routes and margins, and better availability of bus drivers in Australia. Taxi operations will face competition in the near term from new ride-hailing operators in Singapore and softer revenue in China due to weak economic conditions.

• 9M24 revenue was above expectation at 80% FY24e due to CMAC acquisitions. PATMI was within our expectations at 74%. 3Q24 PATMI rose 15% YoY. Profitability in Australia has suffered due to bus driver shortages collapsing margins.
• Excluding CMAC and A2B acquisition, total EBIT growth was 8% YoY, led by higher margins from repricing of UK bus operations. The largest drag was Australia, where EBIT collapsed 51% YoY after removing A2B due to bus driver shortages.
• We raised our FY24e revenue and PATMI by 9%/1% respectively. We maintain our DCF target price of S$1.63 but downgrade our recommendation from BUY to ACCUMULATE due to share price performance. Earnings growth is dependent on recent acquisitions at the expense of higher gearing. Organic growth drivers have largely stalled except for the repricing of London bus routes, which is starting to contribute materially this quarter. We believe the acquisition of CMAC and, recently, Addison Lee is earnings accretive. Both acquisitions allow the company to enter Europe's premium point-to-point transportation and accommodation service industry. We await the potential synergies from the S$750mn worth of acquisition.

• 1H24 results were within our expectations. Revenue and PATMI were 52%/45% of our FY24e forecast. 2Q24 net profit rose 18% YoY driven by a strong turnaround in UK bus and Singapore taxi businesses. Interim dividend increased 21% to 3.52 cents.
• Around half of 2Q24 EBIT growth was from UK bus operations. It turned around from losses to a 3% operating margin. Taxi earnings spiked 48% YoY to S$38.3mn on the back of higher Zig ride-hailing commissions and platform fees. Excluding acquisitions, Australia's earnings in 2Q24 declined 26% YoY.
• Our FY24e earnings and DCF target price of S$1.63 is unchanged. We maintain our BUY recommendation. The re-contracting of London bus routes over the next few quarters will provide strong earnings growth and visibility. Another boost will be a seasonal uptick in earnings from CMAC Group in 2H24. The Singapore taxi business is facing renewed ride-hailing competition. However, higher taxi fares and commission (from end-2023) will provide earnings support in 2H24.  The weakness remains in Singapore rail, which is hardly profitable, and the margins in Australia are declining.

• 1Q24 results were within our expectations. Revenue and PATMI were 25%/20% of our FY24e forecast. 1Q24 net profit increased 24% YoY to S$40.6mn.
• Taxi operations enjoyed the strongest growth with a 39% YoY jump in 1Q24 earnings. Public transportation continues to earn paltry operating margins of 3%, dragged down by lower margin contract renewals in Australia. 1Q is typically the weakest seasonally.
• We maintain our FY24e and DCF target price of S$1.63. Our BUY recommendation is unchanged. Earnings growth is still underway led by higher platform fees and commission charged by Zig Singapore, continuous margin improvement from UK bus re-contracting and expansion, lower taxi rebates, contribution from CMAC acquisition and increased taxi fleet size in China and volume improvement in Singapore rail operations. Australia is the weak spot due to lower margin bus contract renewals.

The Positive

+ Operating leverage from Zig platform. Taxi earnings jumped around 39% YoY to S$23mn. The rise was due to higher commission rates and platform fee charged on the Zig ride-hailing app. Another boost to earnings was the turnaround in China from lower rental discounts.

The Negative

- Decline in Australia earnings. Australia's operating earnings declined by 16% to S$9.2mn. Lower margins in public bus renewals especially in Sydney and other New South Wales routes dragged earnings lower.

• FY23 earnings beat expectations at 117% of our forecast. Revenue was within our estimates at 98%. 4Q23 PATMI jumped 77% YoY to S$49.3mn.
• The turnaround in UK bus operations and growth in Singapore and China taxi operations were the major drivers of earnings.
• We raised our FY24e earnings by 24% to S$207mn. Our BUY recommendation is maintained and the DCF target price raised to S$1.63 (prev. S$1.57). We expect multiple earnings drivers in 2024; (i) higher platform fees and commission for Singapore taxis; (ii) UK bus indexation and re-contracting; (iii) Increased taxi fleet size in China; (iv) Margin recovery for Singapore rail operations as operating cost stabilises, rail passenger numbers grow and lagged re-pricing of fares.

The Positive

+ Jump in China taxi earnings. Operating profit in China jumped almost 4-fold to S$7.8mn in 4Q23. Earnings recovered as rebates were removed. Demand for vehicles has been strong, and ComfortDelGro is looking to expand its fleet to accommodate the demand.

The Negative

- Meagre rail earnings. We expect Singapore rail operations to be barely profitable. The rise in wages and electricity has impacted margins. We believe margin recovery will occur in FY24e from the lagged 7% rise in fares and slower rise in operating costs, especially electricity.

• 3Q23 normalised PATMI jumped 48% YoY to S$48mn and was within our expectations. Revenue was softer than expected. 9M23 revenue and PATMI were 73% and 78% of our FY23e forecast.  
• Earnings growth was driven by a turnaround in the UK bus operation and growth in Singapore taxi operations. UK benefited from higher pricing through contract indexation and renewal. Singapore taxi margins expanded with platform fees.  
• We lower our FY23e revenue by 4% and PATMI is maintained. Our BUY recommendation and DCF target price of S$1.57 is unchanged. Earnings momentum will be sustained by higher bus service fees in the UK, taxi platform fees in Singapore and lagged pricing of rail services in Singapore. 

Source: Company, PSR #Note – Only selected financials are provided in the 3Q23 update.

The Positive 

+ UK operations turnaround. A major part of earnings growth in 3Q23 was the turnaround in UK operations. From an operating loss of S$2mn, UK swung to a S$6mn profit. Around 70% of the routes have been re-indexed. Another boost to margins will be re-contracting of the bus contract routes that can expire up to 5 years. Recent re-contracting has seen a significant improvement in margins. 

The Negative 

- Rail profitability is still weak. We believe profitability in Singapore rail remains weak despite the jump in passenger traffic. Rail operations are burdened by the higher electricity and a lagged re-pricing of fares. The next round of higher fares will be in December this year. 

Outlook 

We expect earnings growth to sustain into FY24e, supported by re-pricing of bus contracts in the UK, improvement in bus efficiency in Australia as drivers return, platform fees raising taxi margins and higher fares driving up Singapore rail profitability. Taxi operations in Singapore have seen a resurgence in competitive pricing by other platforms but Comfort’s taxi fleet has remained stable with market share rising.  

Maintain BUY with an unchanged TP of S$1.57 

ComfortDelgro pays around 4.6% dividend yield, enjoys a net cash balance sheet of S$500mn and visibility of earnings recovery.  

• 2Q23 results were within expectations. 1H23 revenue and PATMI were 45% and 47% of our FY23e forecast. PATMI grew 17% YoY to S$45mn as taxi earnings doubled.
• Public transport remains a drag on earnings from weaker foreign exchange and higher bus driver costs in the UK. We expect a strong rebound in earnings as bus contracts service fees in the UK are repriced higher from inflation indexing and more rational pricing.
• No changes to our FY23e forecast but we raised our FY23e DPS to 6.08 cents (prev. 5.3 cents), as the company increased their minimum payout ratio from 50% to 70%. Our BUY recommendation and DCF target price of S$1.57 is unchanged. The largest driver to earnings in 2H23 will be the repricing of services in the key public transport and taxi operations. We believe the key earnings driver in 2H23 include higher bus service fees in the UK, increased hiring of Australian bus drivers, the introduction of taxi platform fees in Singapore and lower taxi rental rebates in Singapore and China.

The Positives

+ Taxi profits doubled. 2Q23 margins improved with higher booking volumes, additional booking commissions, lower rebates in Singapore (15% to 10% from Apr23) and reduced taxi rebates and costs in China. Another driver to earnings has been a stable taxi fleet in Singapore. Comfort’s taxi fleet grew 0.8% YoY to 8,782, after several years of decline.

+ Cash piling up and returning to shareholders. Comfort continues to generate healthy free-cash-flows (FCF). 1H23 FCF was S$86.4mn (1H22: S$88.5mn), pilling up the net cash to S$565mn. Capital expenditure is now trending at S$350mn p.a. compared to pre-pandemic S$450-500mn. Comfort has raised its minimum dividend payout ratio from 50% to 70%. We estimate S$131mn of dividends to be paid out this year.

The Negative

- Lethargic in margins for public transport. Public transport operating margin has been the weakest spot for Comfort. 2Q23 margins was 4%, an improvement over 3.4% in 1Q23 but far below pre-pandemic 8%. Bus operations across the UK, Australia and Singapore are depressing margins. The worst hit is the UK which reported an operating loss of S$0.5mn. A combination of irrational tendering activity and a spike in bus driver fees has negatively impacted margins. Australia is suffering from higher overtime salaries and other “running time” charges due to the lack of bus drivers.