ComfortDelGro Corporation Ltd (SGX: C52) released its 2018 third-quarter earnings update on 9 November 2018.
As a quick introduction, ComfortDelGro is one of the world’s largest land transport companies with a total fleet size of over 43,000 buses, taxis, and rental vehicles. The company has operations in Singapore, China, the United Kingdom, Australia, Ireland, Vietnam, and Malaysia. Its main divisions are Public Transport Services (bus and rail), Taxis, Automotive Engineering Services, Testing and Inspection, Driving Centres, and Car Rental and Leasing.
Here are eight important aspects of ComfortDelGro’s latest results which investors should take note of:
1. Revenue for 2018’s third quarter rose 8.5% from S$891.7 million to S$967.9 million, and this was driven mainly by an increase in revenue from public transport services, but offset by softer revenues from the taxi and automotive engineering service businesses. Interestingly, new acquisitions made up 45% (S$32.3 million) of ComfortDelGro’s overall revenue growth, demonstrating that the new acquisitions made by the company over the past year are starting to bear fruit and contribute to revenue.
2. ComfortDelGro’s operating profit for the reporting quarter inched up by just 1.7% from S$111.5 million a year ago to S$113.4 million. The main factors for the slower growth in operating profit compared to revenue were rising staff costs and also fuel and electricity expenses. Staff costs increased by 12.8% to S$417.7 million as a result of (1) additional headcount to support the new Seletar Bus Package which commenced in March 2018, and (2) new staff and services from newly-acquired entities. Fuel and electricity expenses jumped by 36% to S$79.4 million. Nonetheless, it was the first time in four quarters that ComfortDelGro had reported a year-on-year increase in operating profit.
3. Net profit attributable to shareholders declined by 2% from S$80.1 million a year ago to S$78.5 million, as a result of lower dividends received from Cabcharge Australia. Even though there was a slight decline in net profit, the chart below shows impressive sequential growth in both operating and net profit over the last four quarters:
Source: ComfortDelGro 2018 third quarter earnings presentation
4. Operating cash flow slipped by 1.3% from S$171.0 million a year ago to S$168.8 million. With capital expenditure increasing by 9.0% from S$90.9 million to S$99.1 million, ComfortDelGro’s free cash flow declined by 13.0% from S$80.1 million to S$69.7 million.
5. ComfortDelGro’s balance sheet has weakened slightly from a year ago as it took on more debt to support its acquisitions over the last 12 months. Borrowings rose 27.7% from S$350.1 million as of end-December 2017 to S$447.2 million as at 30 September 2018. Cash, meanwhile, dipped by 8.8% from S$538.1 million to S$490.9 million over the same period.
6. Looking at ComfortDelGro’s two key divisions, Public Transport Services saw a 15.2% increase in revenue, from S$601.5 million a year ago to S$692.9 million. This was contributed by higher bus revenue as well as higher ridership on the Downtown Line from the company’s subsidiary SBS Transit Ltd (SGX: S61). New acquisitions (three in Australia and one in Wales) contributed S$28 million in ComfortDelGro’s revenue growth for the quarter. For the Taxi division, revenue declined by 8.4% (S$16.6 million) from S$198.6 million to S$182.0 million, as a result of a smaller fleet in Singapore. The decrease from the Singapore business was S$23.3 million, but this was offset partially by an increase in revenue of S$6.7 million resulting from the acquisitions of Dial-a-Cab in the UK and Metro Taxis in Australia.
7. The following chart shows ComfortDelGro’s revenue outlook for the whole of 2018:
Source: ComfortDelGro 2018 third quarter earnings presentation
8. Yang Ban Seng, ComfortDelGro’s CEO, shared the following comments in the latest earnings update on the company’s business opportunities:
“Organically, our Singapore and overseas public transport business continued to do well with higher mileages operated. The Singapore Taxi Business has shown slight improvement compared to the last quarter. Our inorganic growth has been strong. The acquisitions earlier in the year have started to contribute. For this year, we have invested over $450 million in new acquisitions in Singapore, Australia, the United Kingdom and China. We will continue to be on the lookout for opportunities to grow the business.”
In a separate announcement made on 9 November 2018 too, ComfortDelGro is setting up a US$100 million corporate venture capital fund to focus on incubation and investments in mobility technologies and solutions which will help complement the parent company’s existing land transport business. The fund will be called ComfortDelGro Capital Partners.
In all, it can clearly be seen that the positive impact of ComfortDelGro’s S$450 million worth of acquisitions this year alone is kicking in and contributing to its revenue. Although ComfortDelGro’s Taxi earnings might be further pressured by the impending entrance of Indonesian ride-hailing giant Go-Jek, the company’s other divisions are picking up the slack.
The recent acquisitions will help to buffer any revenue declines in ComfortDelGro’s core Singapore Taxi business, while ComfortDelGro Capital Partners could become a good incubator platform for the company to test out new and potentially profitable technologies which it could incorporate into its core business. These developments will take time to bear fruit but should provide a measure of comfort to shareholders that management is taking a long-term, strategic view in growing the business. All these said, investors should also focus on ComfortDelGro’s ability to grow its profit and cash flow – as mentioned earlier, growth in these two measures were absent in the reporting quarter.
Worried about the overall state of the market? Do you know the 1 thing you should never do in the stock market? The Motley Fool Singapore’s new e-book lays out a plan to handle market crashes, details the greatest advantage you have as an investor, and looks at decades worth of market data to bring you the smartest insights on investing. You can download the full e-book FREE of charge—Simply click here now to claim your copy.
The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston does not own shares in ComfortDelGro Corporation.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chong Ser Jing owns shares in ComfortDelGro Corporation. The Motley Fool Singapore has a recommendation on SBS Transit.