Setting a new target for oversea revenue contribution

ComfortDegro has just announced a new target, ie, 70% of turnover to be contributed by oversea markets in the next five to seven years. This is up from the previous 50% target set a few years back, which the company is well on track to realize. At this juncture, oversea markets contributed 47.0% and 46.2% of turnover and operating profit respectively in FY07, vs 44.6% and 42.3% in FY06.

Strong execution capabilities in oversea expansion. ComfortDegro has grown its oversea markets via both organic growth and acquisition. Turnover of oversea markets grew at a CAGR of 15.4% from 2003 to 2007, significantly higher than that of its home market (Singapore) at 4.7%. Push for a wider use of public transport is an important approach by governments to alleviate traffic congestion and pollution issues linked with massive private vehicle ownership. We believe this bodes well for public transport operators like ComfortDegro in the long term.

BUY ComfortDegro. We like the company’s diversified exposure in land transport business. Its decent 6-7% dividend yield has limited downside risks under current volatile market environments. (Target price under review. previous: S$2.46)

ComfortDelGro sets new goal of 70% overseas revenue

TO mark its fifth anniversary, ComfortDelGro Corp has set a target of achieving 70 per cent of annual turnover from overseas operations within five to seven years.

When the land transport giant was formed five years ago after the merger of Comfort Group and DelGro Corp, its mid-term target was to derive 50 per cent of total revenue from abroad. It is almost there. For the year ended Dec 31, 2007, overseas operations accounted for 47 per cent of group turnover and 46 per cent of group operating profit.

Its record overseas turnover of $1.4 billion was thanks to strong performances by bus operations in the UK, Sydney and Shenyang, and taxi operations in the UK and Beijing.

‘As we celebrate our fifth anniversary, we have to ask ourselves how we are going to sustain and further grow our business in today’s highly competitive and fast-changing landscape,’ ComfortDelGro chairman Lim Jit Poh said at a gala dinner yesterday.

‘My board is not just satisfied with our present achievement. We are hungry and want to do more. We are now setting ourselves a new target, increasing our overseas turnover to the next hurdle of 70 per cent of our total turnover within the next five to seven years.’

He said that although this will not be easy to achieve because the group is now starting from a much larger base, it is a target that must be set.

Since its formation, ComfortDelGro has adopted an aggressive overseas expansion strategy to become the world’s second-largest land transport company today. It has a global fleet of more than 41,000 vehicles and 22,000 staff. It operates in 23 cities across seven countries – Singapore, China, the UK, Ireland, Australia, Vietnam and Malaysia. In terms of the number of countries, the group has added only one – Australia – compared with five years ago. But the difference is that its presence in each country today is huge.

ComfortDelGro has so far invested $791.9 million overseas. The bulk, $309 million, is in China, followed closely behind by the UK and Ireland with $294 million. Australia is a fast-growing market and third at $176.5 million, while Vietnam and Malaysia account for $8.5 million and $4 million respectively.

‘From humble beginnings, ComfortDelGro Corporation has grown into a multi-modal, multinational land transport operator,’ said Minister in the Prime Minister’s Office Lim Boon Heng, who was guest-of-honour at yesterday’s dinner. ‘It is not just number one in Singapore. It is number two in the world.’

He called ComfortDelGro a ‘Singapore success story’ and said it has the best global footprint: ‘It has grown its businesses and positioned itself well in different markets. It has stayed focused on its core business and built upon its strengths to the benefit of the communities in which it serves.’