April 4, 2023

Electrifying Its Business; Keep BUY

Keep BUY and SGD1.40 TP, 17% upside and c.5% yield. ComfortDelGro is poised to see benefits from the increased demand for its public transport and taxi services in 2H23. A recent survey showed that street-hailing taxis remain competitive vs private hire car rides. CD also remains committed to transitioning towards more environmentally sustainable operations and plans to spend SGD6bn to replace the bulk of its fleet of buses and taxis with electric vehicles (EV).  

Investing to electrify its business. In a recent The Strait Times article, outgoing chairman Lim Jit Poh suggested that the group will spend SGD6bn to replace the bulk of its fleet of buses and taxis with EVs. He was also told that CD could consider getting into the distribution of EVs, a business it conducted before 2003. It rolled out 100 BYD e6 electric taxis in Singapore during 2022 and has plans to have up to 1,000 of these vehicles by 2024. As at end of 2022, it operated 56 diesel hybrid/electric buses under its Singapore public bus business. In its latest tender, the group is looking to secure 500 new petrol-electric hybrid taxis that are expected to be delivered from Nov 2023. The tender also comes with an option for another 500 hybrid taxis, with delivery no later than Oct 2025. The total of 1,000 hybrid taxis would account for c.11% of its fleet size.  

Getting into EV and related businesses. In 2022, CD started operating electric shuttle bus services for the National University of Singapore and the National Technological University Singapore. The group operates a fleet of 54 private electric buses, making it Singapore’s largest electric private bus operator. CD’s driving centre in Singapore has added five electric cars to its training fleet for its Class 3A Licence Course, with a view to growing the electric car training fleet to 100 by 2030. In Sep 2021, CD ENGIE won the pilot tender to install and deploy 479 charging points at public car parks. This was followed by a second tender win in Nov 2022 to install up to 4,509 charging points at 387 HDB car parks.  

CD’s taxi business remains competitive. A recent survey by The Straits Times showed that despite the wide adoption of ride-hailing phone apps, taxis could still be hailed on the street and were also the cheapest way to hire a point-to-point ride, though with waiting times that are generally longer than other modes most of the time (Figure 1). Given the group’s market leadership in Singapore’s taxi industry, its drivers should see benefits from the increased demand for taxi and private-hire car rides.  

Expecting strong operating metrics in 2H23. We reiterate our view that the public transport services in Singapore, especially rail services, should witness a strong increase in ridership with higher tourist arrivals in 2H23.  

ESG. We rate CD highly on the ESG assessment, with a score of 3.56 vs the country mean score of 3.00.

Overall ESG Score: 3.56 (out of 4) 

E: GOOD CD incorporated the creation of an energy-efficient transport system as one of its three key pillars of sustainability framework. It set clear goals and targets for greenhouse gas emissions reduction, improvements in energy efficiency, and the use of renewable energy. 

S: EXCELLENT CD is aiming to achieve zero workplace fatalities and workplace injury rates below the national averages in its operations – targets that it achieved in 2020. It also achieved a zero fatality rate for passengers/commuters in countries where it has public transport operations. To ensure that its transport services are accessible to all regardless of age or ability, CD has ensured that 100%, >90% and >57% of its buses in Singapore, the UK, and Australia are wheelchair-accessible. 

G: EXCELLENT CD’s board is made up of ten directors, nine of which are independent (90%). Reflecting on gender diversity, 30% of the board is made up of females. CD engages with governments and regulators on different levels, to help shape public policy and regulations that support the land transport sector. It also participates in ESG ratings, such as S&P, Sustainalytics, MSCI and CDP, to disclose its ESG performance and efforts to shareholders.

BUY by RHB Group Research.  Share price closed at S$1.21