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.
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“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.