Tough times seem here to stay for land transport companies such as ComfortDelGro Corporation Ltd (SGX: C52), or CDG.
The land transport giant recently released its full-year 2020 earnings report, and it was, unfortunately, not a pretty picture.
Back in November, we reviewed CDG’s results. Back then, a big question was whether the business could witness a turnaround with the arrival of Phase III in Singapore.
Three months later, the pandemic situation remains acute and vaccine distribution is stalling in many countries due to logistical problems.
The threat of mutated versions of the coronavirus being more deadly and infectious has also cast a pall on efforts to contain the disease.
Investors should be rightfully concerned about CDG’s prospects as the outlook remains cloudy.
Here are five highlights from the transportation conglomerate’s earnings that you should take note of.
Propped up by government reliefs
For 2020, the group reported a 17.2% year on year fall in revenue to S$3.2 billion for the full year.
Operating profit plunged by 70.4% year on year to S$123.1 million from S$415.8 million a year ago.
Profit attributable to shareholders plummeted in tandem with operating profit, declining by 76.7% year on year to S$61.8 million.
Investors should note, however, that CDG was able to report an operating profit of S$123.1 million due to S$169.3 million worth of government reliefs doled out in the wake of the pandemic.
Stripping out these reliefs, CDG would have reported its first-ever full-year operating loss of S$46.2 million.
Weak public transport demand
Public transport usage remained weak due to social distancing measures and lockdowns in various countries.
Work from home arrangements also crimped demand for transportation as people hunkered down to avoid physical contact with others.
Full-year revenue for the public transport division (consisting of bus and rail) fell by 10.8% year on year to S$2.6 billion.
This division is CDG’s largest and contributed 79.6% of group revenue.
Operating profit for the segment plunged by 44% year on year to S$125.5 million due to social distancing measures and lockdowns.
Consequently, operating margin fell from 7.8% in 2019 to 4.9% in 2020.
Taxi division’s first-ever full-year loss
CDG’s taxi division reported its maiden full-year loss, in line with a profit warning released early last year.
Revenue for the division fell by close to 40% year on year due to rental waivers extended to drivers in Singapore and China to help them tide through the pandemic.
The division also experienced significantly lower demand in the UK and Australia.
To make matters worse, CDG also recognised impairments totalling S$35.8 million for the taxi business in four countries — Singapore, Australia, the UK and Vietnam.
The competition had already ratcheted up for the division since the entrance of ride-hailing companies Uber (NYSE: UBER) in 2013 and Grab in 2014.
Although Uber bowed out in 2018, Indonesian ride-hailing company Go-Jek joined the fray in the same year to compete for a slice of the land transport pie.
With both the pandemic and increased competition, it looks like CDG’s taxi division may remain under pressure in the foreseeable future.
Sharply-reduced dividend
CDG did not declare an interim dividend, with Group Chairman Lim Jit Poh acknowledging that it is the first time in its history that the company has not paid a mid-year dividend.
At the time, management felt that cash conservation was a top priority as Singapore was just emerging from a tough circuit breaker period.
However, the group did declare a final dividend of S$0.0143, which is 50% of profits attributable to shareholders, but sharply lower than the previous year’s S$0.0529.
For context, CDG paid a total dividend of$0.0979 for 2019, which means that its 2020 annual dividend plunged by a stunning 85% year on year.
It remains to be seen if the group can maintain even this current level of dividends as its business remains under pressure.
At CDG’s last traded price of S$1.58, its shares provided a trailing 12-month dividend yield of just 0.9%.
An uncertain recovery
Investors who are hoping for a turnaround this year may be disappointed.
In its outlook statement, CDG warned that the COVID-19 pandemic continues to be very disruptive to economies.
Although Singapore, which contributed more than half of the group’s operating profit for 2020, has moved on to Phase III of its reopening, ridership has yet to recover to pre-pandemic levels.
Telecommuting may be a permanent feature for companies, leading to a long-term reduction in demand for public transport.
Also, for other countries that CDG operates in such as China and Australia, a resurgence in infections has seen lockdowns being imposed once again.
A full lockdown in the UK is also badly affecting the group’s business there.
As it stands, recovery remains a distant prospect and investors may have to tolerate another year of depressed earnings.
SPECIAL FREE REPORT! 10 Growth Stocks to Supercharge Your Portfolio! We cover 3 unstoppable growth trends and the 10 stocks that will ride them in 2021 and beyond! CLICK HERE to download for FREE now!
Don’t forget to follow us on Facebook and Telegram for some of our latest free content!
Disclaimer: Royston Yang does not own shares in any of the companies mentioned.
