Comfort Delgro

Comfort Delgro: HSBC initiates with O/w Call and $1.65 TP. House note that Rail to expand, as plans to decongest roads kick in. Forecast SG’s rail revenues to grow 5% pa in the next 6-8 yrs (vs. an average 2% pa in the last 5 yrs), driven by govt plans to expand the rail network by 57% to 278km by 2020. Population growth and recent moves to curb private car growth to 0.5% p.a. (from 1.5% pa) should drive rail ridership.

Believe fears that competition will intensify appear overblown, as SG’s relatively small mkt of 5-6m people may not sustain a third rail operator. Add that CD, as the smaller operator with 23% of network, could see rail segment rev grow 12% p.a. from 2011-20. Rail segment is expected to contribute about 9% of its rev by 2020 (vs. 4% now), with buses and taxis making up most of the remainder.

On back of the above initiation, Co. has also announced that it will make changes to its taxi fare structure from next Mon, and other taxi Co’s may soon follow suit. Peak period surcharge will be 10 ppts lower at 25% of metered fare, and passengers will be hit by surcharge an hr earlier in weekday mornings starting from 6am. Evening peak period surcharge will start an hr later at 6pm and end at midnight instead of 8pm. Sundays and public holidays, previously free of peak period surcharges, will see evening peak period surcharges.

The $3.00 city area surcharge will now also extend to Sundays and public holidays. Flagdown rates will also go up. Booking fees will be reduced by $0.20 but advanced booking fees will rise by $2.80. Grp manages a fleet of 15,700 cabs or 66% of the 23,800 total taxis in SG. SMRT Taxis will be considering a ‘fare revision’ as well.