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Can ComfortDelGro’s Share Price Recover?

·4-min read
Comfort Taxi
Comfort Taxi

The path towards normalcy looks much smoother now for ComfortDelGro Corporation Limited (SGX: C52), or CDG.

Singapore announced a further easing of movement restrictions and group sizes on April 26, allowing for life to return to close to what we knew before the pandemic.

Travel requirements have also been eased as the government adopts a vaccinated travel framework to replace the vaccinated travel lanes (VTL) scheme.

Despite this opening up, CDG’s share price has not recovered and is still down around 12% compared to a year ago.

But with more people up and about, can the land transport giant see its share price recover to pass S$2.00?

Let’s take a look to see if this may be possible.

Significantly better numbers

CDG announced better financial numbers for its recent fiscal 2022 first quarter (1Q2022) business update.

Revenue inched up 3.9% year on year to S$895.9 million, but operating profit before COVID-19 reliefs nearly doubled year on year to S$102.5 million.

This result was due, in part, to lower year on year operating costs for the group.

Net profit jumped by 30.4% year on year to S$76.7 million, and CDG generated nearly S$150 million in operating cash flow for the quarter.

Business conditions are improving

Business conditions have also improved dramatically as most countries have adopted an endemic approach to COVID-19.

With international travel increasing and borders reopening, this bodes well for transportation in general as more people need to get from one place to another.

In Singapore, ridership for public transport has been steadily climbing, hitting around 65% to 70% of pre-pandemic levels by the end of 1Q2022.

In Australia, most public health restrictions were lifted in December last year after 90% of the population was vaccinated.

In the UK and Ireland, international travel with most countries has fully resumed while public transport services have recovered to full-service levels.

Only China is still facing challenges as it has seen a surge in infections and the government has imposed mass screenings and lockdowns, thus delaying the recovery of transportation within the country.

On the whole, it’s good news for CDG as it enjoys a recovery in most of the regions where it operates.

Divisions show mixed results

On a business division level, CDG’s results have been mixed.

The public transportation services division has seen revenue edge up 6% year on year to S$712 million but the taxi division’s revenue has declined by 11.2% year on year to S$106.3 million.

Singapore, Australia and the UK have enjoyed higher public transport revenue with services resuming.

However, the taxi division in Singapore gave out rental discounts and fuel rebates to drivers to offset their lower earnings, while CDG also recognised lower revenue after the divestment of its London taxi business last year.

On the bright side, revenue from CDG’s inspection and testing services division under VICOM Limited (SGX: WJP) saw a slight year on year increase from S$24.1 million to S$26 million.

The picture, however, looked much better at the operating profit level.

Public transportation services saw its operating profit surge 83.1% year on year to S$37.9 million while the testing and inspection division’s operating profit climbed 14.3% year on year.

Taxi services saw operating profit declined 21.6% year on year due to the reasons stated above.

Get Smart: Brighter prospects

From the above, we can deduce that CDG is poised to see brighter days ahead.

Back when the blue-chip transport giant released its fiscal 2021 earnings, it had already given a hint of better days to come when it nearly tripled its annual dividend to S$0.042.

CDG continues to generate the bulk of its revenue from Singapore, at 57.8% of total group revenue for 1Q2022.

With the easing announced in late April, the group should see public transport ridership increasing significantly from May onwards.

With taxi rebates being a one-off and more people needing transportation to get around the island, CDG’s taxi division should also see a healthy recovery.

Apart from China, CDG’s other regions should also enjoy healthy ridership as travel and tourism volumes increase closer to pre-pandemic levels.

It may take a few more quarters, but investors who are patient should see CDG’s business volumes improving.

And in tandem with the brighter prospects, its top and bottom lines should also increase.

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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.

The post Can ComfortDelGro’s Share Price Recover? appeared first on The Smart Investor.

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