Excerpts from analysts' report
|
|
We hosted ComfortDelGro’s management at our Hong Kong Corporate Day on 1 April and in an NDR to Japan. Key takeaways are as below:
» The opening of Downtown Line (DTL) phase 2 by 1Q16 and phase 3 by mid 2017 should add to earnings. Construction is on schedule and timelines should be met. The DTL is loss making at the moment because only phase 1 (10% of total length) is open. The completion of DTL will see its heavy rail business in Singapore double in terms of number of kilometers operated.
» The company is upbeat about bus reforms given that the business earns a paltry 2% margin at the moment. It will tender packages at prices which make sense to management. With respect to the Bulim bus tender (i.e. the first package under the bus reforms), the company does not think it is worthwhile doing at SMRT's bid price. CD submitted the second lowest bid. Singapore bus capex should drop off under the new model. CD will get to keep advertising revenue on the buses.
» Discussions with government on the sale of bus assets under the new GCM. Various options including one-off lump sum sale and staggered payments are being looked into.
» Singapore taxi: This remains a steady business. Uber not a threat at the moment because its fleet size is much smaller than the incumbent taxi operators in Singapore.
» Longer term, the company is still keen to grow the overseas business; the threshold is mid teens IRRs. It must have control and margins must make sense. Regulatory environment must be conducive for foreign investment in any overseas country. CD continues to expect growth in the Australian bus business and in the China taxi business.
» Dividends: Even though the company has a 50% payout policy, it has exceeded that number in recent years (e.g. in 2014 it was 62%), and will continue to reward shareholders as much as possible going forward.
