ComfortDelGro Shares: Rising Costs Hit Q3 2022 Earnings

November 15, 2022

Singapore’s leading transport company, ComfortDelGro Corporation Limited (SGX: C52), recently repoted its quarterly earnings.

The taxi, bus, and train operator reported a 32.9% year-on-year (yoy) increase in its profit after tax and minority interests (PATMI) to S$34.3 million for Q3 FY2022.

Excluding non-recurring items and government relief, earnings before interest and tax (EBIT) grew 170.7% yoy to S$33.8 million during the quarter. Meanwhile, revenue grew 10.1% to S$969.5 million.

According to the transport operator’s management, the growth was mainly due to improving economic activity in Singapore after COVID-19 restrictions were relaxed.

Despite the improved performance, it came in below consensus expectations and the decline in quarterly earnings should be a concern for investors.

Cost pressures hurt ComfortDelGro margins

Revenue has continued to grow on a quarterly basis, but growth momentum has slowed in Q3 FY2022.

However, global inflationary manpower and supply chain cost pressures worsened, and negatively affected, margins.

In Q3 FY2022, PATMI has continued on a downtrend trend on a quarterly basis.

Similarly, EBIT – excluding non-recurring items and government relief – was also down as compared to the previous two quarters.

Source: ComfortDelGro’s Business Update for Q3 FY2022

CDG’s public transportation services slowed in Q3 FY2022

Public transportation services, which consists of about 80% of the total revenue in the quarter for ComfortDelGro, slowed to S$772.5 million in Q3 FY2022 – from the previous quarter.

Driver shortages have led to higher expenses on overtime and higher-fee agency workers.

The public bus service fees are indexed monthly for fuel charges but changes for wages based on consumer price index (CPI) are only carried out on a yearly basis.

This is why we have seen the impact on margin over the last two quarters, resulting in lower operating profit.

Source: ComfortDelGro’s Business Update for Q3 FY2022

CDG taxi business continues to recover

Meanwhile, the taxi business, which is the second-largest business for ComfortDelGro, continued to recover in Q3 FY2022.

The EBIT for its taxi business rebounded to S$16.4 million in Q3 FY2022 as compared to S$9.7 million in Q2 FY2022 and a S$6.0 million loss in Q3 FY2021.

In Singapore, the taxi business’s revenue increased by 15.4%, mainly due to lower COVID-19 rental discounts, higher call volumes and newly introduced commission rates (from May 2022).

Job bookings through ComfortDelGro’s app in Singapore jumped by 50% yoy to around 9 million in Q3 FY2022.

Source: ComfortDelGro’s Business Update for Q3 FY2022

Business activity continued to improve as COVID-19 restrictions relaxed

During Q3 FY2022, activity levels continue to improve in most geographies as COVID-19 restrictions relaxed.

However, top line growth has moderated as we return to the new normal.

Macro challenges are likely to continue as shortages of manpower supply and wage pressures, globally, continue to hurt margins.

The recent tender win announcements could provide upside for ComfortDelGro but prolonged margin pressure will remain a key risk in the near term.

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

Billy Toh

Billy is deeply committed to making investment accessible and understandable to everyone, a principle that drives his engagement with the capital markets and his long-term investment strategies. He is currently the Head of Content & Investment Lead for Prosperus and a SGX Academy Trainer. His extensive experience spans roles as an economist at RHB Investment Bank, focusing on the Thailand and Philippines markets, and as a financial journalist at The Edge Malaysia. Additionally, his background includes valuable time spent in an asset management firm. Outside of finance, Billy enjoys meaningful conversations over coffee, keeps fit as a fitness enthusiast, and has a keen interest in technology.

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