News Alert: Winning Down Under
- Awarded three bus contracts totalling A$1.7 bn in Greater Sydney, of which two are renewals; contracts to run for up to 8 years
- Relatively insignificant with estimated 2% increment to net profits but highlights ability to recontract and gain share
- Reiterate our positive view on counter with share price yet to reflect improving financial performance
- Maintain BUY, TP: S$1.95 with current share price at 1x P/BV, 13x PE and 5.5% yield on FY23F estimates
What’s new?
Clinched renewals and new bus regions to expand share of bus market; contract value of A$1.7bn. ComfortDelGro announced in a media release that it has been awarded three bus contracts in Sydney, New South Wales. These bus contracts are for the operation of bus services in the Greater Sydney area, pertaining to Regions 4, 14 and 12. Regions 4 and 14 are contracts in which the Group is currently operating, while Region 12 is currently run by another operator and will be consolidated into Region 14.
The new Region 4 contract will run for eight years commencing in Apr 2023, while the new Region 14 contract will commence in May 2023 and run for seven years.
Our views
A reaffirmation on its bus operations Down Under; rough estimates of ~2% increment to net profit. Based on the media announcement indicating the contract value of A$1.7bn (S$1.53bn), we estimate that this equates to about a contract value of roughly A$225m (or S$200m) per year. Given that two of 3 regions are recontract, our back-of-envelope estimates suggests that the increment profit contribution could be c.2% improvement to CD’s bottomline (for the addition of Region 12) to our FY23F estimates on a margin assumption of 8%.
While this is not significant, it shows CD’s ability to recontract and gain market share. In fact, it has also earlier won another tender in Norther Territory to become the sole operator of public transport bus service in Darwin, Palmerton and Rural Areas with a fleet of over 220 buses.
Reiterate BUY, TP: S$1.95. We maintain our BUY recommendation, as we still see value in the counter, with it trading at 1x P/BV, c.13x PE and 5.5% yield on our FY23F forecasts. We believe CD continues to benefit from normalisation of COVID-19 restrictions, while its share price has yet to reflect that. Its 3Q22 business update will be on 14 Nov, and we will provide further updates thereafter.