The land transport operator has several things going. In its 1QFY2024 ended March, its rail ridership increased by 8.8% y-o-y and up 6.2% q-o-q, which puts this at a level 2% higher than the pre-pandemic 2019.
"Backed by higher rail fares implemented in Dec 2023 along with increased margins from ongoing UK bus contract renewals, we maintain our expectations that CD’s public transport services segment would post higher revenue and profitability for 1QFY2024," write Tan and Mo.
Nonetheless, they estimate that CD's rail business is likely unprofitable for now.
Pre-pandemic, CD's Downtown Line incurred an operating loss of $46.1 million. They estimate this segment was still unprofitable in the most recent FY2023 at $15 million in the red.
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"However, with the higher rail fares implemented in Dec 23, we expect margins for the CD’s rail segment to improve and reach near break-even levels in 2024," state Tan and Mo.
Another plus point for CD was that it recently won a series of new contracts worth $720 million to run bus services in the UK over the coming five years.
Tan and Mo, using an assumption of 8% operating margins, estimates that these new contracts will help generate an additional $12 million in operating profit and will increase CD's earnings for FY2025 and FY2026 by around 3 to 4%.
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"With improving fundamentals, a lush 5.5% dividend yield and a robust balance sheet, we reckon that most negatives have already been priced in."
Furthermore, they expect better sequential earnings improvement for CD for 1QFY2024, which would help support share price performance.
The analysts' higher target of $1.72 is based on 16 times FY2024 earnings, which is a slightly higher multiple from 15 times used previously.
"Despite the recent strong share price performance, we opine that there is still upside at current price levels," state Tan and Mo.
ComfortDelGro shares changed hands at $1.48 as at lunch break, up 0.6%.
