The Singapore-based bank DBS anticipates higher profits for ComfortDelGro Corporation Limited (SG:C52) following a 7% hike in public transport fares. On Monday, the Public Transport Council (PTC) in Singapore announced a fare increase of 7% as part of its annual review, which is scheduled to be implemented from December 23, 2023.
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According to PTC, the fare hike is expected to result in an annual increase in fare revenue of approximately S$137.4 million. Public transport operator SBS Transit Limited (SG:S61), which operates as a subsidiary of ComfortDelGro, is anticipated to experience an annual revenue growth of S$20.9 million. This year, SBS Transit is expected to contribute 15% of its anticipated revenue increase to the public transport fund, as mandated by the PTC.
The bank sees this as a favourable development for the company and its subsidiary, SBS Transit. Following the announcement, analyst Andy Sim from DBS maintained his Buy rating on ComfortDelGro’s stock with a price target of S$1.65. This implies an upside of 29% in the share price from the current level.
ComfortDelGro is a global transportation company operating in seven countries with an extensive fleet of buses, taxis, and various rental vehicles. The company holds a 75% ownership stake in SBS Transit.
The Bullish Case
The fare hike equates to an extra 10 to 11 cents per journey, setting a new record and surpassing the expectations of DBS. Sim is bullish on the company’s prospects, as higher fares reduce its dependence on government support and could lead to improved profit margins.
Sim predicts an earnings enhancement of S$14.7 million in FY24 for SBS Transit and an increase of $11 million in net profit for ComfortDelGro. DBS anticipates that the fare hike and the rise in train ridership will collectively drive SBS Transit’s train segment to profitability in FY24. The bank further stated that the average daily rail ridership for SBS for August 2023 had returned to levels seen before the COVID-19 pandemic.
Is ComfortDelGro a Good Stock to Buy?
According to TipRanks, C52 stock has received a Strong Buy rating, based on six Buy and two Hold recommendations. The ComfortDelGro share price forecast is S$1.46, which shows an upside of 14.05%.
