• Keep BUY and SGD1.65 TP, 14% upside and c.5% yield. ComfortDelGro was awarded three bus contracts in Australia, with a c.AUD1.6bn contract value to be spread over a 10-year term commencing in Jul 2025. The win allows CD to not only retain its existing contracts but also add new services in its Victoria Public Bus business. While earnings impact should be minimal, we maintain that CD will see a better 2H24 amidst seasonality, contributions from the recently completed acquisitions, and improving margins for its UK public transport business.

• New contract win in Australia. CD has been given contracts to operate bus services in three of the five Melbourne metropolitan zones in Victoria, Australia. The three franchises are worth around AUD1.6bn or SGD1.4bn. The contract will last 10 years, beginning in Jul 2025. CD stated that the contract win will allow it to keep the existing contracts while adding new services. This will result in a 30% increase in its Victoria Public Bus operations. CD will now serve 20% of the Melbourne Metropolitan Network. CD stated that the buses and depots are funded as part of the contracts, and it will switch to zero-emission operations by the conclusion of the contract term. The contracts will include 250 public bus and school routes, served by nearly 360 buses. While we view the contract win as positive for CD, it may not have a significant impact on earnings. This is largely because CD had earlier indicated that its Australian public transport business is seeing increased competitive pressure, which could translate into lower margins. In its 2Q24 results briefing, CD noted that it is facing driver shortages as well.

• One-off earnings impact in 3Q25. CD also announced that as part of the contract win, it will transfer ownership of its current bus terminals at a valuation calculated during the contract award. This transfer, expected to occur in 3Q25, will result in a one-time profit on sale of SGD14.3m. However, management guided that funds from the transfer of the current bus depots will be redeployed inside the Australian business for additional investment, capital expenditure, and/or repayment of existing debt facilities.

• Remain positive on outlook. We expect CD to deliver strong growth in 2024, helped by contributions from the recently completed A2B and CMAC Group acquisitions, which generated positive contributions in 2Q24. We anticipate improved margins for CD's UK public transport division, which should experience a seasonally strong 2H24. Despite the increased competition in Singapore's taxi market, we expect the improvements seen in 2Q24 to continue in 2H24. Our earnings and TP remain unchanged. Our TP adds a 6% ESG premium to its fair value of c.SGD1.55, based on its 3.4 ESG score vs the country's 3.1 median.

Source: RHB Research - 6 Sep 2024