New Year, New Beginning

For 2021, we expect a robust 143% yoy growth in net profit, coming off a low base in 2022. Looking forward, an expected recovery in ridership levels and new contract wins would boost 2022 earnings. Maintain BUY with a lower target price of S$1.90 (S$1.99).

WHAT’S NEW

Public transport: Favourable tailwinds ahead. ComfortDelgro’s (CD) public transport segment is poised to experience a strong recovery due to upcoming beneficial tailwinds. Starting on 1 Jan 22, Singapore’s authorities have removed the work-from-home default arrangement, and up to 50% of fully vaccinated employees are now allowed to return to their workplaces. Bus and train fares in Singapore have also increased by 3-4 S cents as authorities granted the maximum allowable fare adjustment quantum of 2.2% to help operators mitigate rising costs. Backed by a population that is majority fully-vaccinated, these tailwinds would help underpin CD’s public transport earnings from 2022 onwards.

Strengthening global footprint. CD was awarded an S$1.13b eight-year contract to operate rail services in Auckland, New Zealand. The Auckland rail is the country’s largest rail network and the contract is expected to commence on 16 Jan 22. Based on our estimates, we expect a S$3m-4m annual boost to CD’s bottom line. CD also acquired the remaining stake of its subsidiary, Scottish City Link Coaches, for S$15.8m in 4Q21. Expected to complete in Feb 22, the acquisition would make CD the second largest inter-city coach operator in the UK with a market share of 11% and inter-city coach fleet size of 150
(previously: 100).

New risk-profit sharing model. SBS Transit (SBST) announced that the Downtown Line (DTL) will transition to the New Rail Financing Framework Version 2 (NRFF V2) as of Jan 22. Under NRFF V2, 50% of DTL operating losses below 3.5% EBIT margin would be coshared with the Land Transport Authority, resulting in roughly S$28m in annual savings for CD. However, SBST would also release its rights to lease advertising spaces of the rail lines at end-23 and extended five existing bus contracts by three years at a lower service rate, with a loss of S$34m service revenue per year starting 30 Sep 22. Overall, we estimate that the new profit sharing model would have negligible impact on earnings.