Comfort Delgro – local and overseas business segments

Comfort-Delgro (CDG) report a set of good results before the Chinese New Year. All the business segments contributed positively to the final results and have been quite broad-based.

The main revenue contributors were from the bus and taxi segments. The two segments contributed 80% of the total revenue. Unfortunately, the operating margins were relatively low at 8% and 11.8% respectively.

For the bus segment, given that the Singapore operations, which contributed about two-third of the total revenue was incurring losses. This means that overseas bus operations have been the main profit contributors for this segment. Hence, any weakness in the exchange rate of British pounds, Aussie dollars or Chinese yuan may affect CDG’s bus segment business going forward.

The taxi segment is a different story. Given that revenue from the local taxi segment takes up about 3/4 of the revenue from taxi segment ($961.2m against $1280b), it is very likely that the local taxi fleet is a major profit contributor to taxi segment.

Apart from the bus and taxi segments, the other segments are also doing well. However, their revenues are relatively low compare to the bus and taxi segments. The worst segment is the rail which contributed about only 3.9%. This also provides an indication that operational profit margin from the rail for SMRT may also be thereabout.

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Positives

  1. Net cash position. (Cash of $825.8m against long-term and short-term debt of $493.7m & $243.4m respectively.)
  2. Many sources of revenue and profit contributors.
  3. Assets transfer to government should be able to unlock more cash to enable Comfort-Delgro to invest in overseas (Total amount is about $1.1 to $1.2b).
  4. Low energy cost. Fuel and electricity takes up about 9.1% of the total operating cost. Last year, it spent about $329.8m against the total operating cost of $3609.2m.
  5. Generally easier to duplicate its bus operation system to other countries compare to rail operations.

Negatives

  1. PE is about 22, a bit too rich.
  2. Any weakness in the British pounds or Aussie dollars or Chinese Yuan could affect its profitability.

(Brennen Pak has been a stock investor for more than 25 years. He has accumulated a wealth of experience in shares investment. He is the chief trainer of BP Wealth Learning Centre LLP.)