ComfortDelGro (CD SP) is gaining momentum with a series of recent developments in Australia. The company's subsidiary, ComfortDelGro Corp Australia (CDCA), through its arm CDC Victoria, has successfully secured three new franchises under the Victorian Department of Transport and Planning's Metropolitan Zero Emission Bus (ZEB) Franchises tender process. Following these contract wins, the company's FY24E EPS forecast remains unchanged, but FY25-26E projections have been raised by 1-2%.
Consequently, the discounted cash flow (DCF)-based target price has been increased to SGD1.65 from SGD1.60, with an 8.3% weighted average cost of capital (WACC) and 0.5% long-term growth rate. Maybank Stock Broking House maintains a BUY rating for the land transport conglomerate.
The three new contracts, valued at approximately AUD1.6 billion (SGD1.4 billion) over a ten-year term, are set to commence in July 2025. These contracts encompass 250 public bus and school routes, serviced by over 360 buses, with funding for both buses and depots included. The transition to full ZEB operations is expected to be completed before the end of the contract term. With an assumed EBIT margin of 6% and a corporate tax rate of 30%, the incremental profit contribution is estimated to be around SGD5.9 million annually.
In addition to the new contracts, CDCA will realise a one-off gain of SGD14 million from the sale of its depots at Oakleigh, Truganina, and Albion, effective from the start of the new contract term. This gain, anticipated to be booked in the third quarter of 2025, will be reinvested into the Australian business, including further investments, capital expenditure, and debt repayment.
Building on its recent successes, CDC Victoria will maintain its existing contracts while adding new services in the west and northwest regions of Melbourne. The acquisition of an additional 86 buses will increase the total fleet for Melbourne's metropolitan contracts to 369, reflecting a significant 30% growth in its Victoria Public Bus business. This expansion will enable ComfortDelGro to service approximately 20% of Melbourne's Metropolitan Network.
Source: Maybank
Title: Gaining momentum
