Broker’s advice on ComfortDelGro investment after losing the second bus bid

ComfortDelGro remains robust with a decent dividend yield.

Investors are advised to still go for ComfortDelGro despite its subsidiary losing the Jurong-West bus package from Land Transport Authority (LTA) tender, said UOBKayHian.

“We had accounted for ComfortDelGro to lose both bus packages. With the removal of this near-term earnings overhang, we like ComfortDelGro for its improving fundamentals, decent 4.7% dividend yield and robust balance sheet, `Maintain BUY with a higher target price of S$1.56 (S$1.53 previously),” said the broker.

ComfortDelGro’s subsidiary, SBS Transit, will continue to run the Bukit-Merah bus package after it expires in April 2024 for an additional five years. Even though it lost the other tender, which is the Jurong-West bus package, SBS Transit still gets the largest market share at 55%, overseeing eight bus packages by September 2024.

UOBKayHian sees that the more affordable package won the tender. SBS Transit had the lowest bid with $896m but LTA did note that a two-enveloped process, implying it only looked at price submissions after finishing the quality check on the bids.
“We opine that awarding both bus packages to the same incumbent instead of two different operators was more likely, given existing economies of scale and removing the need for a transition,” it said.

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