Just days before ComfortDelGro (CDG) was to report its FY2024 earnings on Feb 27, several Australian media outlets, including The Sydney Morning Herald, The Age and the current affairs programme 60 Minutes ran reports accusing taxi company A2B, which was recently acquired by CDG for A$165.1 million ($138.3 million), of taking the country “for a ride”.
In response, CDG rejected the “false and misleading claims”, adding that the allegations “ignore the extensive measures we have taken to prevent and combat fraudulent activity in the taxi industry”.
At the results briefing on Feb 27, CDG’s managing director and group CEO Cheng Siak Kian said that the event was “pre-existing” in the Australian taxi industry, saying that it was “driver fraud” and not about A2B or 13Cabs as a company.
He added that in Australia, the meter and the point-of-sale systems are two separate entities, thereby allowing drivers to input their own charges on top of the metered fare. Since the acquisition, the group has implemented strict measures, including two-factor authentication on Cabcharge cards and direct meter integration for accurate fare recording.
“As a corporation of our standing, we have absolutely zero tolerance of any kind of dirty doings,” says chairman Mark Greaves, who added that any financial impact to the group would be “negligent” and “certainly not material”.
However, these negative headlines from Australia failed to garner significant attention within the local investment community. In its report on Feb 17, DBS Group Research noted that there could be “short-term costs to strengthen internal controls and resolve disputes”, but emphasised that A2B remains “a legitimate business with continued earnings growth potential”. Following the results, analysts have largely focused on CDG’s earnings for the year ended Dec 31, 2024, which met consensus expectations.
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For FY2024, CDG reported earnings of $210.5 million, up 16.6% y-o-y. Revenue in the same period was up 15.4% y-o-y to $4.48 billion with growth partly from new public transport contracts in London that were renewed at higher margins. The introduction of platform fees and higher commission rates and fares for Singapore taxis and private hire vehicles from July 2023 helped as well. Besides A2B, other newly acquired entities including CMAC Group, and Addison Lee, chipped in as well.
“Our overseas contribution is increasing in proportion to Singapore, and likewise, the profit contribution has similarly done the same,” says Cheng. In FY2024, CDG’s profit contribution from its overseas businesses increased to 34.9% from 26% in FY2023. The proportion is likely to increase further, as the likes of Addison Lee was only acquired last November
Going forward, CDG aims to expand its public transport portfolio, with opportunities in the UK, including Liverpool and Yorkshire, alongside the recent memorandum of understanding signed with RATP Dev for Copenhagen Metro operations.
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Higher contributions are expected from contracts won last year, including the ones in Manchester, Stockholm and Victoria, Australia. CDG will also focus on growing its so-called premium point-to-point segments, leveraging the know-how from black cab provider Addison Lee.
In Singapore, its home market, CDG anticipates intensified competition between taxis and private hires following the two new licences awarded by the Land Transport Authority in December 2024.
Group deputy CEO Derek Koh notes that as CDG cannot stop drivers from jumping ship, there will be some impact to a certain extent. The company is watching the situation “carefully” but believes that it will not have a material impact overnight.
The company aims to compete by adding Toyota Alphards, a luxurious minivan, to its “premium” fleet. “This is where we believe that we have a competitive advantage [in] some of these rides, which are not necessarily determined by what we call the ASAP factor… but we’re looking at something more premium, more sustainable, and I think that will also generate better income for our drivers,” says Cheng.
Analysts keep targets mostly unchanged; Maybank upgrades to ‘buy’
Following the results, Eric Ong of Maybank Securities upgraded his call to “buy” with a higher target price of $1.64 from $1.60 as he sees CDG as being “on the right track”.
OCBC Investment Research’s Ada Lim and UOB Kay Hian’s Llelleythan Tan and Heidi Mo kept their “buy” calls as CDG’s results met their expectations. Lim has an unchanged target price of $1.67 while Tan and Mo have lowered their target price to $1.76 from $1.77.
DBS Group has also kept its “buy” call with an unchanged target price of $1.80, believing that CDG can see another year of strong growth thanks to full-year contributions from its recent acquisitions, the commencement of its Manchester bus contract and continued expansion in margins for the UK bus business.
“These factors should help offset some softness in the local taxi, private hire, and public transport segments. We are currently reviewing our forecasts, pending the release of the latest Addison Lee financials,” says DBS.
