ComfortDelGro’s FY2022 Earnings: Inflation Hurts But Earnings Recovery Continues

March 6, 2023

Singapore’s leading land transport operator, ComfortDelGro Corporation Limited (SGX: C52), recently reported an increase of 63.3% year-on-year (yoy) in its earnings to S$57.8 million during H2 FY2022.

Earnings for the whole of FY2022 was up by 40.7% yoy to S$173 million.

Meanwhile, revenue for H2 FY2022 was up by 9% yoy to S$1.93 billion, with an increase of $235.8 million coming from underlying businesses.

This was partially offset by an unfavourable foreign currency translation of $76 million from the weaker Australian dollar and British pound.

For FY2022, revenue was up 7.9% y-o-y to S$3.78 billion.

Cost inflation will continue to drag on earnings

ComfortDelGro was among the first to be affected by the COVID-19 pandemic as commuting traffic collapsed due to the imposition of movement restrictions.

With the reopening of the economy, we have seen a strong earnings recovery amid the pickup in mobility.

However, the earnings recovery for ComfortDelGro had been held back by the rising cost of inflation.

In the UK, the impact of backpay expense – arising from the bus deal in the UK in December 2022 – has hurt earnings.

Similarly, the Public Transport Services segment saw a lower margin in FY2022.

Going forward, the segment will also be affected by the full-year impact of an amendment to the service fee payable by the Land Transport Authority (LTA) on five public bus contracts, which was effective from September last year.

The UK Public Transport Services segment’s earnings will also be affected by the 11% increase in drivers’ pay.

Earnings recovery will continue in FY2023

I believe the ongoing improvement in Singapore’s rail ridership, bus charter in Australia, and coach services in the UK will continue to support higher earnings for public transport services.

That’s despite higher operating costs, the uncertainty over the timing of indexation formulas, and lower bus service fees.

Singapore taxi revenues will continue to improve as taxi rental rebates will be gradually phased out this year.

According to ComfortDelGro, the number of taxi drivers has declined from 11,000, as of end-2019, to 8,500 in early 2023.

Currently, demand for both taxis and private-hire vehicles have outpaced supply with demand for taxis more than what the Group can handle at the moment.

Similarly, the reopening in China will also see taxi revenues in China improve.

Special dividend for ComfortDelGro anniversary shareholders

ComfortDelGro has also declared a special dividend per share (DPS) of S$0.0246 on top of its final DPS of S$0.0176.

Together, this translates into a full year dividend of S$0.0848, which was significantly higher than what was declared for FY2021.

Attractive valuation for ComfortDelGro

ComfortDelGro’s share price is currently trading at a relatively attractive valuation with a forward price-to-earnings (PE) ratio of 13.6 times.

This is lower than the 16 times forward PE that the transport operator was trading at since 2015.

The share price also remains 11.1% below where it was a year ago.

Part of the reason for this has been the impact of inflationary pressure, especially with higher salary costs.

Aside from that, the driver supply for taxis and ride-hailing could remain tight in the near-term due to the high certificate of entitlement (COE) prices.

Long-term investors, however, should find the entry level into ComfortDelGro at a fairly attractive level with the worst likely over for the company.

Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.

Billy Toh

Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.

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