160 Reasons Why ComfortDelGro Corporation Limited Might Grow

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Land transport giant ComfortDelgro Corporation Limited (SGX: C52) hit a new revenue milestone yesterday, recording $1.019 billion for the second quarter of 2014.

There is a fair bit of details to go into, so let’s dive right in.

Business segments

For the three months ended 30 June 2014, ComfortDelGro’s revenue grew by 11.9% year-on-year to reach a new milestone – the company had previously never crossed the S$1 billion mark in sales during a quarter.

The contribution of the revenue growth was broad based, with the main driver coming from its bus business. The segment recorded an impressive 18.2% increase in top-line to $517.2m and made up 50.8% of the company’s total quarterly revenue.

The bus segment benefited mainly from a 64.5% revenue increase from its UK bus services (operating as Metroline Ltd.) and a 10.2% increase from its Singapore operations. You may recall that ComfortDelgro owns 75% of Singapore bus operator, SBS Transit Ltd. (SGX:S61). The newly acquired Metroline West service contributed to the 64.5% rise. On the flipside, revenue from the bus businesses in Australia and China faltered due to the respective loss of regional routes and the divestment of bus operations in Shengyang.

For ComfortDelGro’s namesake taxi business, the segment recorded a 6.7% growth in sales to $320.1 million or 31.4% of the company’s quarterly revenue. Growth in Singapore (7.4%), China (2.3%), Vietnam (13.3%) and UK (11.8%) had offset a decrease in Australia (-17.5%). It should be noted that ComfortDelGro’s Singapore taxi operations made $238.7 million in sales for the quarter, or close to 75% of revenue for the company’s entire taxi segment.

Elsewhere, revenue from the bus station business ($7.1 million) and automotive engineering services ($108 million) were essentially flat.

ComfortDelgro’s rail business (primarily the Downtown Line) also showed healthy growth as revenue rose 20.8% to $48.8 million, or less than 5% of quarterly group revenue. It was boosted by the opening of the new Downtown Line 1 in Singapore.

Finally, the contribution from ComfortDelGro’s Inspection and Testing services had increased by 2.2% to $28.2 million on higher business volumes. The company’s 67%-owned subsidiary, VICOM Limited (SGX: V01), is the mainstay in this segment.

One other noteworthy element of ComfortDelGro’s top-line growth was that it benefited from a positive foreign currency translation of $10.4m due to the stronger Sterling Pound in relation to the Singapore dollar.

Show me the money!

Overall Operating Profit rose 6.5% to S$119.9 million while net profit increased by 9.9% to S$75.7 million. Operating expenses rose faster than sales, increasing 12.6% overall. The main contributors to the cost increase came from staff costs (17.3%), fuel and electricity costs (25.6%) and premises cost (26.9%). On an earnings-per-share basis, ComfortDelGro logged growth of 8.9% to 3.55 Singapore cents.

For the quarter ended 30 June 2014, the company reported $744.1m in cash and short term deposits and $696 million in borrowings. This gave a net cash position of $48.1 million, a healthy $25.4 million increase from its net cash position in Dec 2013.

It is notable that overseas revenue made up 41.2% of ComfortDelGro’s overall revenue and 50.7% of total operating profit. With more profit coming from overseas, ComfortDelGro stands to gain from disciplined growth through acquisition or expansion overseas.

For dividend lovers, the land transport giant also declared an interim dividend of 3.75 cents per share. This is a 25% increase from the interim dividend of 3 cents declared in the prior year.

Outlook: 160 reasons to look forward to

I have noted from a CNN report that there are currently more than 160 cities in China that have a population of 1 million or more; for some sense of scale, Singapore’s population stands at around 5.3 million currently. To add to this, more than half the population in China (that works out to be 700 million people) now resides in cities.

These are all potential customers for ComfortDelGro to serve.

Taxi services make up most of the company’s revenue in China. It is present in nine cities, but have taken top three market share positions in Nanning, Jilin, Chengdu, Beijing, and Shenyang.

But despite the seemingly tantalizing runway for growth, it’s by no means guaranteed that the company can do well there. In 2013, China made up 5.9% of the company’s total revenue, down from 7.3% in 2012 –  ComfortDelgro still has some serious work to do in order to capitalize on the outsized opportunity.

Foolish Bottom Line

ComfortDelgro is now very much an international growth company. It has benefited from its overseas growth in UK and Australia over the past five years, and continues to have space to expand to (hint: China). It currently trades at a price to earnings ratio of 19.8 and has a dividend yield of 3%, based on yesterday’s closing price.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.