ComfortDelGro Corporation Ltd is one of the largest land-transport companies in the world, and a constituent of the Straits Times Index (STI). For 2016, it had revenues of S$4.05 billion and profits of S$317 million.

ComfortDelGro operates in seven countries but Singapore remains its biggest market accounting for almost 60% of its profits. Viewed by business segment, 75% of the company’s profits come from Taxis and Public Transport. The figures are a broad-brush measure of how important the Singapore taxi, bus and rail operations are to ComfortDelGro’s bottom-line. And on that front, business has been tough for the last few years!

ComfortDelGro’s taxi, bus and rail operations in Singapore went through a difficult period, but the prospects have improved for all three.

ComfortDelGro taxi operations in Singapore hit by ride-hail apps

Taxis in Singapore were operated akin to a regulated utility until ride-hail apps upended the status-quo. Uber which started operations in 2013, followed by Grab a year later, introduced much needed changes to this stodgy market, but their grab for market share through aggressive promotions beggared the incumbent taxi operators.

Uber and Grab introduced much needed changes to the local taxi scene, but their aggressive pursuit of market share through promotions and discounts beggared the incumbents.

ComfortDelgro was not spared the pain even though it was the most experienced taxi operator with the largest fleet. It was handicapped by regulations that required taxis to adhere to metered fares while ride-hail operators could set their own prices. It is only in 2017 that new rules were passed placing private-hire vehicles on par with licensed taxis with measures such as approved vehicles, licensed drivers and controls on pricing.

SBS Transit bus-operations strained under the fare revenue model.

Meanwhile, its listed subsidiary SBS Transit’s bus operations remained unprofitable under the fare revenue model and the company stayed afloat on advertising and rental income. Bus operations turned profitable only after the bus contracting model was introduced in September 2016.

There were years when SBS Transit earned more from advertising than public transport! Its core bus-operations turned profitable only after the bus contracting model was introduced.

SBS Transit’s rail operation is smaller compared to its bus operation. Rail has been profitable but its earnings remained flat due to the start-up costs incurred on Downtown Line 3. The new line commenced operations last October.

2018 brings glad tidings for ComfortDelgro in its home-market.

The New Year promises a brighter future for ComfortDelGro in its biggest market.

Foremost, Uber cut its losses and withdrew from the market and its. Uber’s exit has improved the outlook for the taxi operators with ComfortDelgro reporting a marked increase in taxi bookings. It is early days yet, but the prospects for the taxi business in Singapore look brighter than in the recent past.

With their Singapore taxi, bus and rail businesses all expecting higher profits, the case for investing in ComfortDelGro has never been as strong as at present.

For its part, SBS Transit is expected to report substantially better results for 2018. Its bus segment is benefiting from the transition to the bus contracting model, while their rail operations will report its first full-year earnings from the Downtown Line. SBS Transit’s profits for 2017 is up 49% from the year before, and on that form it is on track to achieve the highest ever profits this year.

ComfortDelgro’s carefully calibrated expansions and steady annual growth makes a strong case for investment. But the argument for investing has never been as strong as at present.