ComfortDelGro Corporation (CDG) (SGX:C52) is a diversified multinational land transport company that operates taxis, buses, and trains in countries such as Singapore, Australia and the UK.
SBS Transit (SBS) (SGX:S61) is a 75% owned subsidiary of CDG and is the leading public transport operator in Singapore, managing over 200 bus routes, the Downtown and North East MRT lines, and the Sengkang/Punggol LRT lines. SBS Transit’s primary competitor is SMRT, a wholly government-owned entity. There are also smaller competitors like Tower Transit and Go-Ahead Singapore.
Vicom (SGX:WJP) is a vehicle inspection company that is 67% owned by CDG. It has a majority share of the vehicle inspection market in Singapore, with 6 out of 8 authorised inspection centres. STA Inspection (STAI), a wholly-owned subsidiary of ST Engineering (SGX:S63) owns the remaining 2 inspection centres.
| Company | Market cap ($) | 1YR return (%) | P/E (times) | Dividend yield (%) | P/B (times) |
| Comfort DelGro | 3.21B | -4.03 | 14 | 5.7 | 1.2 |
| SBS Transit | 1.15B | 32.35 | 19 | 4.8 | 1.7 |
| Vicom | 0.64B | 33.58 | 15 | 3.4 | 3.9 |
CDG, despite being the parent of SBS and Vicom, has seen its share price tread water over the last 12 months while SBS and Vicom’s share prices both went up by over 30%. Here we look at why CDG is lagging.
Why is CDG lagging
Investors often view CDG differently from its subsidiaries due to its complex, global risk profile, compared to the relatively stable, “cash cow” nature of SBS Transit and VICOM.
Unlike its Singapore-centric subsidiaries, CDG faces global challenges including forex volatility in Australia and the UK, labour costs arising from shortages in Australia, and high inflationary costs in the UK. Recent major acquisitions (e.g., A2B Australia, Addison Lee) have moved the company into a net debt position.
CDG’s legacy taxi business has faced disruption and continued pressure from private-hire rivals such as Grab (NASDAQ: GRAB). Declines in the Singapore taxi fleet continue to be a primary pressure point for its earnings growth.
One point to note is that in FY19, CDG had revenues of $3.9 billion and an operating profit of $415 million. Now it has revenues of $5.1 billion and operating profit of $373 million.
In FY19, CDG had a net cash position of approximately $60 million; it is now in a net debt position of $729 million. Despite a long list of what were supposed to be value-adding acquisitions, these deals merely brought heft but not significant profits. Earnings per share currently stands at 10.63 cents, much lower than the pre-covid EPS range of 12 to 14 cents.
Dividends were also closer to 10 cents before COVID-19 and are currently at 8.5 cents.
All these is mainly due to the weakening Taxi segment as well as tighter margins in the Public Transport segment. Profitability for both segments is currently below pre-covid levels in spite of increasing revenues. The Public Transport segment revenue was $2.9 billion in FY19 and $3.3 billion now, however profit fell from $224 million to $178 million. The Taxi segment’s revenue was $669 million in FY19 and $1.03 billion now; however profit barely inched up from $104 million to $121 million.
Why is SBS a cash cow
SBS has had a stable profile since the Bus Contracting Model (BCM) was introduced in 2016, which shifted the role of operators such as SBS from being owners to service providers.
Under the BCM, the Land Transport Authority (LTA) owns all buses, depots, and ticketing systems. Operators just have to bid for bus packages (groups of routes). If they win, the government pays them a fixed fee to run those services.
The revenue risk is on the government, as it collects all fare revenue. This means that if ridership drops, the operator’s income is not directly affected, as they are paid for the service they provide rather than per passenger.
All operators have to do is adhere to strict performance standards, such as reliability and safety standards, to receive their full fee.
There is also a similar framework for MRT and LRT lines, akin to the bus model but with different financial sharing arrangements. As with buses, the LTA owns the trains and signalling systems, making the major decisions on upgrading and expansion.
Most current lines (like the North East Line and Downtown Line run by SBS) use NRFF Version 2. This includes a “collar” mechanism where the government shares the risk if fare revenue falls too low, but also takes a larger share of the profits if the operator does exceptionally well.
Moving forward, newer lines like the Thomson-East Coast Line (TEL) and Jurong Region Line (JRL) use a “gross-cost” model. Like the bus model, the government collects all fares and pays the operator a fixed service fee, which reduces risk compared to Version 2.
This model provides a predictable, steady income stream for SBS Transit, but it also caps how much profit SBS can make from the local transport system. This is why parent company CDG looks overseas to unregulated markets for higher growth.
Why is Vicom a cash cow
Vicom dominates a legally mandated market with high barriers to entry, allowing it to generate steady, predictable profits with minimal reinvestment needs.
Vicom is Singapore’s leading provider of technical testing and inspection services. Its primary business is compulsory roadworthiness inspections for vehicles, while its subsidiary, Setsco Services, provides non-vehicle testing in fields such as civil, chemical, and mechanical engineering.
It operates in a duopoly with only one major competitor due to regulatory barriers. Vehicle inspection is not optional in Singapore; it is required by law for road tax renewal. This creates a captive customer base that must return every 1–2 years.
CDG’s Valuation
CDG looks relatively attractive from a P/E, P/B, and dividend yield perspective. Moreover, from a sum of the parts valuation (SOTP), with the two listed subsidiaries already contributing $1.3b in market value, investors are getting the remaining business for just $1.9b.
Based on CDG’s ownership share of the 2 listed subsidiaries, they contribute about $75 million in profits, which means the remaining business accounts for about $155 million in profits. On this basis, the remaining business is valued at a P/E of 12 times, roughly the same as the overall CDG Group. The SOTP valuation puts CDG as fairly valued as compared to the fundamental valuation metrics. Of course, the key question lies in whether a current P/E of 14 is fairly valued and the answer hinges on what level of profitability CDG’s overseas businesses can deliver in the coming years.
Closing Statements
CDG was removed from the benchmark Straits Times Index (STI) in September 2022. The removal was primarily due to its lower market capitalisation compared to other companies during the quarterly review. After being removed, CDG fell to close to $1 in 2023 before rebounding to current levels.
With a market cap of $3.2 billion, CDG has a very slim chance of being added back to the STI at its current market capitalisation. Aside from the many REITs that outsize CDG in terms of market cap, CDG also ranks behind stocks such as Sheng Siong, Olam, Golden Agri-Resources, and SIAEC (some of which were also former STI constituents).
Therefore, CDG has to first increase its profitability and get itself re-rated and trade at a higher price.
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