ComfortDelgro rail segment dragged by DTL3 startup costs

Operating profit fell 20% in 3Q.

While rail segment is expected to be the key revenue growth driver fro Comfortdelgro on higher ridership from Downtown Line Phase 2 (DTL2), overall rail profitability will likely be affected as start-up costs for DTL3 continues to erode earnings from the North-East Line (NEL), said OCBC Investment Research.

The research house notes that while 3Q16 rail revenue grew 26.3% YoY, its operating profit fell 20.0% on start-up costs incurred in preparation for DTL3

"With DTL3 slated to start nearer to Sep 17, we do not expect DTL to turn profitable before that," it said.

However, the research house notes that as it expects ridership to ramp up within a short time with 16 stations on DTL3 (the most among the three phases), it believes start-up costs will be quickly absorbed, leading to margin recovery.