3 reasons why ComfortDelGro could overtake peers in earnings race

It'll pocket bigger gains from the fare hike.

According to Maybank Kim Eng, unlike SMRT, CDG has a much smaller exposure to the fare-based business in Singapore.

Using the market value of its 75% stake in SBST, Maybank estimates that CDG’s exposure to the fare-based business is merely 7% of its market capitalisation. Furthermore, CDG’s earnings are well supported by stable earnings from its diversified business and geographical exposure.

Here's more:

Singapore fare-based business forms 7% of market value
Unlike SMRT, CDG has a much smaller exposure to the fare-based business in Singapore. Using the market value of its 75% stake in SBST, we estimate that CDG’s exposure to the fare-based business is merely 7% of its market capitalisation.

Furthermore, CDG’s earnings are well supported by stable earnings from its diversified business and geographical exposure.

Losses at rail segment due to start-up costs for DTL
The losses CDG currently sees for its rail segment is mainly due to start-up expenses for the Downtown Line (DTL).

Otherwise, the mature North East Line (NEL) network remains profitable. While start-up losses will continue to weigh on overall profitability in the near term, we expect the situation to reverse when the entire DTL network opens in 2017. Furthermore, as the bigger beneficiary of the recently announced fare hike, CDG should see margin pressure on this business unit easing in the years ahead.

Possible upside to rental and advertising beyond 2017
Looking beyond our forecast years, we see potential for CDG to monetise the new rail network through ancillary income streams.

During the recent 4Q13 results briefing, management highlighted potential retail opportunities with the full opening of the DTL network, which would add another 10,000 sq m of retail space to its network (NEL: about 3,000 sq m). Assuming profitability is maintained, advertising and rental profits would increase significantly when the DTL opens in 2017

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