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New acquisitions in public transport services the main contributor to ComfortDelGro’s increase in FY 2018 revenue - 2018 Annual Report

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ComfortDelGro Corporation Limited (ComfortDelGro)

Source: ComfortDelGro

ComfortDelGro is one of the world’s largest land transport companies. Its main businesses include public transport services (bus and rail), taxi, as well as inspection and testing services. The company operates in seven countries and has a global fleet of about 43,000 vehicles.

FY 2018 Financial Highlights:

Source: ComfortDelGro FY 2018 Presentation slides

  • ComfortDelGro’s revenue increased by 6.4% year-on-year to SGD 3.8 billion in FY 2018.
  • This was attributed mainly to new acquisitions made in late 2017 and 2018, which accounted for 54.3% (SGD 124.2 million) of the revenue growth. In FY 2018, ComfortDelGro invested nearly SGD 0.5 billion in acquisitions, the highest amount yet for a single year.
  • The company’s FY 2018 operating profit grew 7.2% year-on-year to SGD 438.8 million, and net profit attributable to shareholders rose by 0.6% to SGD 303.3 million.
  • Meanwhile, operating costs increased from SGD 3.2 billion in FY 2017 to SGD 3.4 billion in FY 2018.

Performance Drivers:

Source: ComfortDelGro FY 2018 Presentation slides

ComfortDelGro’s FY 2018 earnings growth was chiefly driven by its public transport services business. The company’s inspection and testing services business also recorded an increase from a one-off capital gain. On the contrary, ComfortDelGro’s taxi business continued to slide due to an increasingly competitive environment.

Performance Drivers (Positive Factors)

  • Public Transport Services

ComfortDelGro’s public transport services business experienced a 12.9% year-on-year increase for its FY 2018 revenue to SGD 2.71 billion – 31.0% (96.1 million) of which was derived from new acquisitions. In addition, higher fees were earned from greater operating mileage following the commencement of two new bus packages (Seletar and Bukit Merah) during the year, as well as higher rail ridership following the full-year operations of a new metro line (Downtown Line 3).

Positive growth has been forecasted for the public transport services business in Singapore. Bus service revenue is expected to go up with the full-year contribution from the new bus packages. Rail service revenue has also been projected to increase with the new higher fare adjustment (+4.3%) which took effect on 29 December 2018. Nevertheless, management has cautioned that the rail business will continue to face challenges from rising operating and maintenance costs.

Overseas, ComfortDelGro holds an optimistic outlook for its Australia bus business, while predicting stability for its UK bus business. The acquisition of new businesses in Singapore, Australia and the UK will continue to contribute to overall revenue growth.

  • Inspection and Testing Services

FY 2018 revenue from ComfortDelGro’s inspection and testing services business rose by 6.3% year-on-year to SGD 110.5 million, owing to a one-off capital gain of SGD 7.7 million. This gain was derived from the surrender of lease by VICOM, a vehicle inspection and testing group, of its existing premises in Teban Gardens.

Performance Drivers (Negative Factors)

  • Taxi

ComfortDelGro’s taxi business suffered a 9.7% year-on-year decrease in FY 2018 revenue to SGD 726.5 million. This was largely due to a reduction in the company’s operating taxi fleet.

Nevertheless, despite the increasingly challenging competitive environment in Singapore, revenue from the taxi business is expected to be maintained. The Land Transport Authority in Singapore recently issued a public consultation paper on the proposed changes to regulations for the point-to-point transport (taxi, private-hire, etc.) sector. The impact of the proposed changes remain to be seen. In addition, ComfortDelGro purchased over 900 new hybrid taxis in 2018 and ordered another 600 to be delivered in 2019. Meanwhile, new acquisitions made in Australia, China and the UK will continue to contribute to the overall taxi business.

  • Other Businesses

o Automotive Engineering Services

Revenue from ComfortDelGro’s automotive engineering services business has been forecasted to remain stable. The decline in taxi fleet will negatively impact the demand for engineering services, which will be offset by an expected increase in private-hire engineering demand.

o Driving Center

ComfortDelGro’s overall driving center business is also expected to maintain stable earnings. FY 2018 was a challenging year for the company’s driving center business in China, where its 95%-owned driving subsidiary, Chengdu ComfortDelGro Qing Yang Driving School, faced intense competition. In response, the driving school has amped up its marketing efforts and introduced an incentive-based referral scheme to boost student numbers. On the other hand, enrolment for ComfortDelGro’s driving center in Singapore saw enrolment increase by close to 5% in 2018.

o Car Rental and Leasing

Faced with challenging operating conditions, particularly for its China market, earnings for ComfortDelGro’s car rental and leasing business is expected to decline. The majority of the company’s corporate clients are still keeping a tight budget, negatively affecting revenues. To boost earnings, ComfortDelGro is focusing on promoting longer-term contracts at attractive rental rates for its used vehicles.

Source: ComfortDelGro Annual Report 2018