Comfortdelgro Corporation Ltd (SGX: C52), or CDG, is a land transport conglomerate with a total fleet size of 41,600 buses, taxis and rental vehicles.
Yesterday, the group announced an extension to the rental relief for its taxi drivers until September 2020. The relief is intended to help cabbies tide over lower ridership caused by the Covid-19 pandemic.
Prior to the announcement, taxi drivers were receiving S$46.50 per taxi per day as rental relief which was to be scaled back from April onwards.
However, due to the severity of the downturn caused by Covid-19, CDG has extended the relief until 30 September 2020.
The move will cost the Group’s Taxi division S$80 million and the division is expected to post its first-ever full-year loss.
Taxi on the decline
Investors should note that the Taxi division had already been on the decline for several years.
Covid-19 has simply exacerbated the problem.
The entrance of private car hire companies such as Grab and Gojek has pressured CDG’s taxi division.
From the fiscal year 2014 (FY 2014) till FY 2019, revenue for the taxi division fell from S$912.6 million to just S$668.6 million.
For the duration, the segment’s operating profit also declined by 31% from S$151 million to S$104.2 million.
CDG’s taxi woes are not new, and investors should not be surprised at this latest development as the government had already advised Singaporeans to avoid going out to curb the spread of the virus.
Acquisitions in 2018 and 2019
There is a silver lining, though.
CDG has engaged in a series of acquisitions back in 2018 and 2019 to boost its overseas operations.
These acquisitions were also aimed at boosting its other divisions such as buses and coaches.
Some of these acquisitions included Dial-A-Cab Limited, a taxi circuit operator in London, as well as Tullmarine Bus Lines Pty Ltd, a private bus operator in Victoria, Australia.
These acquisitions, however, will need time to flow through the bottom-line. And with conditions deteriorating in other cities around the world as well, investors need time to see results.
Bus and train services
CDG’s main source of revenue continues to come from the provision of bus and train (i.e. MRT) services through its subsidiary SBS Transit Ltd (SGX: S61).
For 2019, public transport services division made up nearly 74% of total group revenue and took up 54% of total segment operating profit.
The stability of this division cannot be over-emphasized — these are essential public services and can be expected to be relatively recession-proof.
However, if the outbreak worsens and Singapore orders a full lock-down, that may badly impact CDG’s public transport services division.
Get Smart: Transportation is a necessity
CDG’s share price has tumbled to an eight-year low of S$1.48 and is down 37.6% year-to-date.
The group generates strong free cash flow and has been paying twice-yearly dividends.
Shares currently offer a trailing 12-month dividend yield of 6.6%.
Investors need not worry too much as CDG provides essential transportation services that will enjoy consistent demand.
In this sense, CDG is playing its part in helping affected taxi drivers to get through this difficult period so that it may continue to provide critical transportation services to the masses.
However, near-term challenges and headwinds may result in drastic profit declines for the group. Investors need to be mentally prepared for these and more as the situation remains fluid.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
