Things were looking good for transport giant ComfortDelGro Corporation Limited (SGX: C52), or CDG.
The group recently snagged a billion-dollar rail contract in Auckland, New Zealand.
It had also announced the acquisition of a school bus business in Australia last month.
To top it off, CDG was also gearing up for a potential initial public offering (IPO) of its wholly-owned Australian subsidiary back in August.
Investors may recall that this IPO is part of the group’s broad-ranging strategic review that was announced back in June to help unlock value for shareholders.
However, in an about-turn, CDG announced last week that it is no longer pursuing an IPO for its Australian unit.
Has this development thrown a spanner into the group’s growth plans?
An improvement in financials
CDG reported an improvement in its financials for its fiscal 2021 third quarter (3Q2021).
Revenue increased by 7.4% year on year to S$880.3 million as ridership increased on public transport and engineering services also saw a boost.
However, its taxi division saw a decline in revenue as work from home remained the default.
Operating profit, however, declined by 8% year on year due to a 55.2% year on year fall in COVID-19 government reliefs to S$19.8 million.
Excluding these reliefs, operating profit would have clocked in at S$20.5 million, reversing the S$0.4 million operating loss a year ago.
Despite the drop off in reliefs, net profit still climbed by 19% year on year as 3Q2020 recorded an impairment of S$17.5 million.
For the first nine months of 2021 (9M2021), CDG reported a net profit of S$116.8 million, significantly higher than the S$15 million in the same period last year.
The pandemic situation remains uncertain
CDG believes that the pandemic is “far from over” and that the approaching winter months could fuel new surges in various parts of the world.
That said, the increase in global vaccinations and the recent announcement of Pfizer (NYSE: PFE) and Merck’s (NYSE: MRK) COVID-19 pills provide hope that the worst has passed.
For Singapore, ridership remains at around 60% of pre-pandemic levels.
But as the country has an endemic strategy and is slowly opening up its borders through vaccinated travel lanes, this bodes well for the transport operator in the medium term.
However, the situation remains fluid in the other countries where CDG operates.
China is adopting a zero-tolerance approach to the virus and will impose snap lockdowns and mass screenings whenever there is an outbreak.
As for the UK, Australia and Ireland, these countries are keen to open up their economies but are cautiously monitoring the situation in case of a major flare-up.
At the group level, CDG’s operations have yet to recover to pre-pandemic levels but progress is being made as the months go by.
Other growth initiatives
Investors should note that listing its subsidiary is but one method for CDG to unlock value for its shareholders.
The group has said it will explore other options but, in the meantime, the group continues to execute on its other growth initiatives.
CDG Australia intends to pursue growth opportunities in three areas through a mix of tenders and acquisitions.
They are — growth in regional areas, metropolitan areas, and expansion into different modes of transport.
As Australia’s private operator market is highly fragmented, the group sees opportunities to acquire the many family-owned and operated businesses there.
Other modes of transport it is looking at include light rail, heavy and metropolitan rail, and ferries.
CDG also partnered with French energy giant Engie SA (EPA: ENGI) to provide electric vehicle charging in Singapore.
There may be other such opportunities for CDG to work with other companies on growing its footprint in the clean energy space.
Get Smart: Still on the prowl for acquisitions
CDG has a track record of acquiring to grow its business and has been actively buying businesses in both Australia and New Zealand in the last 12 months.
Despite the scuttling of its Australian IPO, the group should still be able to grow via selective acquisitions.
Investors need not fret over this minor blip as CDG is well-positioned to ride on the recovery with its vast fleet of buses and taxis.
Management is also actively working on an alternative plan to unlock value and may present this soon to investors.
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Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
