Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), is today practically where it was a year ago. But while the broader market may appear sluggish, the same certainly can’t be said for one of the index’s components, ComfortDelGro Corporation Ltd (SGX: C52). Over the past 12 months, the land transport operator’s shares are up by 31% to S$3.20. That price is also just a hair’s breadth away from ComfortDelGro’s 52-week high of S$3.26. ComfortDelGro’s one of the world’s largest land transport companies and its reach in Singapore can be felt in many ways such as through its fleet of…
Singapore’s stock market benchmark, the Straits Times Index (SGX: ^STI), is today practically where it was a year ago. But while the broader market may appear sluggish, the same certainly can’t be said for one of the index’s components, ComfortDelGro Corporation Ltd (SGX: C52).
Over the past 12 months, the land transport operator’s shares are up by 31% to S$3.20. That price is also just a hair’s breadth away from ComfortDelGro’s 52-week high of S$3.26.
ComfortDelGro’s one of the world’s largest land transport companies and its reach in Singapore can be felt in many ways such as through its fleet of nearly 17,000 taxis (the largest in Singapore), the buses and trains from its majority-owned subsidiary SBS Transit Ltd (SGX: S61) that run through the island, and the vehicle inspection and testing services that are provided by another of its subsidiary, Vicom Limited (SGX: V01).
With ComfortDelGro’s price being perched near a peak currently, it’s perhaps natural to ask: Is there more room to run? Here are three factors which may help propel the company’s business forward.
1) Cheaper costs
By now, the fact that the price of oil has fallen sharply in the latter half of 2014 (it’s currently around US$60 per barrel, a far cry from its 2014-peak of near US$120) is well known.
The major beneficiaries of such a development would be airlines and transport companies, as fuel is a major component of their overall expenses. For some perspective, fuel and electricity costs were 8.1% of ComfortDelGro’s revenue of S$4.05 billion in 2014.
Lower fuel costs may result in higher profits for the firm if all things remain equal.
2) A new business model for public buses
In the first half of 2014, the Land Transport Authority (LTA) announced a major overhaul of the public bus industry that will see the government take over the ownership of the infrastructure and assets that are needed to run public bus services in the future.
The new model has benefits for current public bus operators. My colleague Stanley Lim writes:
“The most obvious benefit for the operators in the new model is that they will save on capital expenditures that were previously required for the maintenance and expansion of their bus fleet. For instance, SMRT Corporation Ltd (SGX: S53) had spent more than S$75 million in capital expenditures on its bus service in its financial year 2013 alone.”
With a 75% stake in SBS Transit (as alluded to earlier), the new public bus model can be a positive for ComfortDelGro as well as it can help SBS Transit save on the capital expenditures that are used for maintenance and expansion of its bus fleet.
The changes to the public bus industry may even help turn things around for SBS Transit as its bus business has been recording operating losses since 2011.
3) Strong Track Record
Over the past four years from 2010 to 2014, ComfortDelGro has recorded single-digit revenue and profit growth in each year. That’s an example of a solid track record of steady growth.
Furthermore, ComfortDelGro’s a globally diversified business with nearly half of its operating profits coming from outside Singapore’s shores. The wide geographical reach of the firm’s business gives it a better opportunity to grow as compared to being confined within the island.
It’s natural to fear that a share may face a sharp pullback if it’s near a peak.
But, it’s good to note that there’s no point in relying on a share’s 52-week high or low to make investing decisions. It’s far more important to dig deep into the share’s business fundamentals and think about its future five, 10, or even 20 years from now.
So long as a share has a reasonable valuation today and a business that can keep growing for the foreseeable future, its shares could be hitting many new 52-week highs in the years ahead.
On that note, it’s apt to bring the discussion back to ComfortDelGro. While it’s a good thing for investors to see that the firm has a number of tailwinds which can support its future growth, any investing decision can only be reached after a careful consideration of the valuation angle.
For more investing analyses and to keep up to date on the latest financial and stock market news, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore. It will teach you how you can grow your wealth in the years ahead.
Also, like us on Facebook to follow our latest hot articles.
The Motley Fool's purpose is to help the world invest, better.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.