Stockholm win, step towards becoming a major global rail operator
- Joint venture between ComfortDelgro Group (CDG) and Go-Ahead Group awarded contract to operate Stockholm metro
- Believe this win will improve CDG’s credibility as a global rail operator and improve its chances to secure future rail contracts
- Estimate 0.5% to 2.8% incremental contribution to our FY25F earnings; Maintain BUY with TP of S$1.67
What’s New
Joint venture between ComfortDelgro Group (CDG) and Go-Ahead Group, Connecting Stockholm AB (“CSAB”), was awarded contract to operate and maintain the Stockholm Metro. CSAB was first set up in early 2023 with ComfortDelGro Transit (“CDGT”, a CDG subsidiary) holding 40% stake, Go-Ahead (UK public transport operator) holding 50% stake and EuroMaint Rail AB (Swedish fleet maintenance group) holding 10% stake. In Jun-23, EuroMaint Rail sold its 10% CSAB stake to CDGT and Go-ahead with final ownership being CDGT at 45% and Go-ahead at 55%.
Apart from the standard rail operation, contract also includes expansion project support opportunities. Under the contract, CSAB will be providing customer service and the planning and delivery of rail services. It will also oversee the maintenance of the fleet of the trains, station and depot facility. In addition, the contract caters for the JV to provide project support for future development and expansion of the Stockholm Metro.
Picked over previous operator and SMRT JV. A subsidiary of MTR, MTR Nordic, has been operating the Stockholm Metro since Nov-09 with its contract ending in Apr-25. MTR Nordic, which has other transport operations in Stockholm, reported EBITDA of S$5.1m, S$28m and -S$13m in 2019, 2021 and 2022 respectively. CSAB was picked over MTR Nordic and a JV between SMRT and Transdev Group (French public transport operator) to operate the rail network for 11 years starting in May-25.
Our views
Step towards becoming a major global rail operator. With the Stockholm win, it will be the third overseas rail operation win for CDG after Auckland and Paris. We believe with this win in the pocket, it will improve CDG’s credibility as a global rail operator and in turn success in securing future rail contracts.
Stockholm Metro, a profitable and stable business. While the current operator, MTR Nordic, reported negative EBITDA in 2022, the losses was mostly attributable to its other rail operations in Stockholm. In its annual/interim reports, MTR highlighted that Stockholm Metro reported strong operational performance through the pandemic and continues to perform as of 1H23.
Expect S$6.6m net earnings contribution in FY25F. Assuming majority of the profitability is derived from the Stockholm Metro, low interest and depreciation costs and 21% corporate tax rate, we estimate the JV could achieve between S$2.7 to S$14.7m pro-rated net earnings (contract starts in May-25 with annualised earnings at S$4.0m to S$22.1m). Given CDG’s 45% share ownership, we estimate the earnings contribution to CDG to be between S$1.2m to S$6.6m, which represents about 0.5% to 2.8% of our FY25F earnings estimate. We retain our BUY recommendation with TP at S$1.67.