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Government contracting model to boost CDG's razor-thin bus operation margins
Bus asset sales will total to $1.2b.
The government contracting model will boost ComfortDelGro’s razor-thin bus operation margins, a report by CIMB stated today.
CIMB noted that CDG will get $1.2 billion for the sale of its bus operations to the government. CDL currrently has around 3,400 buses.
Over the past few years, CDG and SMRT’s Singapore public bus operations have been running at very thin profits, or even operational losses, if the rental and advertisement incomes are excluded.
CDG’s bus operations have been running at very thin profits or even operational losses due to the operators’ inability to pass the rising cost on to the commuters.
“Under the contracting model, the payments an operator receives for its services rendered are expected to be indexed or partially indexed to costs (energy, labour, etc.), allowing an operator to pass the rising costs on to the government. In light of CDG’s public bus EBIT margins of 8-10% in the UK and 17-19% in Australia (both countries adopt contracting models with their own respective features), we think that an 8-10% EBIT margin under Singapore’s new government contracting model is reasonable,” stated CIMB.
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