ComfortDelgro – MayBank Kim Eng

More Opportunities To Grow Down Under

Successful re-tender of Region 4 in Australia. New South Wales (NSW) Minister for Transport recently announced the award of new metropolitan bus service contracts. ComfortDelGro’s Australia bus unit CDCBus again won the contract to operate Region 4, which comprises the Blacktown, Rouse Hill, Castle Hill, Dural and Parramatta regions. This effectively removes investors’ earlier fears that CDG could lose the service contract to this route, which constitutes one-third of its bus operations in Australia and involves around 500 buses.

Scope for privatisation of bus routes in NSW. Sydney Metropolitan’s bus network is made up of 15 contract regions and managed by different operators. Contract Regions 6-9 are operated by the State Transit Authority (STA) while the other regions are run by Private Bus Operators (PBO). Though the state-run operations account for only four of the 15 contract regions, they chalked up 76% of the passenger journeys clocked in FY12. With the majority of the bus transport services still managed by the state, we believe there is significant scope for privatisation of bus routes in the future. This would represent a major revenue opportunity for private operators such as CDCBus.

NSW public transport pie to continue growing. According to the NSW Long Term Transport Master Plan, Sydney’s population is expected to increase by 30% to 5.6m in 2031, which would drive daily trips made to 21.2m from 16.2m currently, a rise of 31%. With the proportion of commuters using public transport to get to work projected to increase by 3% in 2031, we expect the public transport market in NSW to continue growing. The NSW government has also stressed the importance of Sydney’s bus network to its public transport infrastructure and aims to increase bus services to satisfy the growing demand for bus travel. Hence, with expansion of the bus service market, we see room for CDG to increase its presence in the region.

Attractive valuations beckon, maintain BUY. Following the recent market correction, valuations for CDG are now below its historical average multiples of 16x PER. With acquisition-led growth driving firm earnings over the coming quarters, we expect the stock’s valuation to trade higher and keep our TP unchanged at SGD2.33, pegged at 18x FY14F PER. Maintain BUY.

ComfortDelgro – MayBank Kim Eng

More Opportunities To Grow Down Under

Successful re-tender of Region 4 in Australia. New South Wales (NSW) Minister for Transport recently announced the award of new metropolitan bus service contracts. ComfortDelGro’s Australia bus unit CDCBus again won the contract to operate Region 4, which comprises the Blacktown, Rouse Hill, Castle Hill, Dural and Parramatta regions. This effectively removes investors’ earlier fears that CDG could lose the service contract to this route, which constitutes one-third of its bus operations in Australia and involves around 500 buses.

Scope for privatisation of bus routes in NSW. Sydney Metropolitan’s bus network is made up of 15 contract regions and managed by different operators. Contract Regions 6-9 are operated by the State Transit Authority (STA) while the other regions are run by Private Bus Operators (PBO). Though the state-run operations account for only four of the 15 contract regions, they chalked up 76% of the passenger journeys clocked in FY12. With the majority of the bus transport services still managed by the state, we believe there is significant scope for privatisation of bus routes in the future. This would represent a major revenue opportunity for private operators such as CDCBus.

NSW public transport pie to continue growing. According to the NSW Long Term Transport Master Plan, Sydney’s population is expected to increase by 30% to 5.6m in 2031, which would drive daily trips made to 21.2m from 16.2m currently, a rise of 31%. With the proportion of commuters using public transport to get to work projected to increase by 3% in 2031, we expect the public transport market in NSW to continue growing. The NSW government has also stressed the importance of Sydney’s bus network to its public transport infrastructure and aims to increase bus services to satisfy the growing demand for bus travel. Hence, with expansion of the bus service market, we see room for CDG to increase its presence in the region.

Attractive valuations beckon, maintain BUY. Following the recent market correction, valuations for CDG are now below its historical average multiples of 16x PER. With acquisition-led growth driving firm earnings over the coming quarters, we expect the stock’s valuation to trade higher and keep our TP unchanged at SGD2.33, pegged at 18x FY14F PER. Maintain BUY.

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