DBS Group Research has kept its "buy" call and $1.67 target price for ComfortDelGro C52 , following news that the land transport operator has won a contract via a joint venture to operate the Stockholm metro for 11 years.
This marks ComfortDelGro's third overseas rail operation win following Auckland and Paris.
Besides its extensive bus, taxi and train operations in Singapore, ComfortDelGro owns bus and taxi businesses in other markets such as UK, China, and Australia.
"We believe with this win in the pocket, it will improve its credibility as a global rail operator and in turn success in securing future rail contracts," says DBS in its Jan 24 note.
According to ComfortDelGro on Jan 24, its joint venture with the Go-Ahead Group, called Connecting Stockholm AB (CSAB), was awarded a contract to operate and maintain the Stockholm Metro.
CSAB was picked over the previous operator, MTR Nordic, and another competing bid from a joint venture by SMRT and its French partner Transdev Group.
DBS notes that Stockholm Metro is a profitable and stable business. While the current operator, MTR Nordic, reported negative EBITDA in 2022, the losses were mostly from its other rail operations in Stockholm.
In its annual/interim reports, MTR highlighted that Stockholm Metro reported strong operational performance through the pandemic and continues to perform as of 1H23.
Assuming the majority of the profitability is derived from the Stockholm Metro, low interest and depreciation costs and 21% corporate tax rate, DBS estimates the CSAB could achieve between $2.7 to $14.7 million pro-rated net earnings. The contract starts next May, with annualised earnings at $4 million to $22.1 million.
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Given ComfortDelGro’s 45% share ownership, DBS estimates the earnings contribution from this new venture to be between $1.2 million to $6.6 million, which represents about 0.5% to 2.8% of its coming FY2025 earnings estimate.
