Fare hike could lift ComfortDelGro’s FY2024 profit by S$11 million: DBS

THE upcoming public transport fare hike could raise ComfortDelGro’s FY2024 bottom line by boosting contributions from its bus and train businesses, according to DBS Group Research.

In a report on Tuesday (Sep 19), the research house estimated that SBS Transit would see a FY2024 bottom line improvement of S$14.7 million from FY2023 levels, after factoring in gains from the impending fare changes effective Dec 23 this year.

This translates to an S$11 million increase in net profit at the group level for ComfortDelGro, it said.

ComfortDelGro, a land transport conglomerate, owns a 74.4 per cent stake in SBS Transit. The unit operates public bus and train services in Singapore.

In DBS’ view, the upcoming fare hike, coupled with higher train ridership, will allow SBS Transit’s train services segment to become profitable in FY2024.

The bank noted that SBS Transit’s average daily rail ridership for August 2023 had reached pre-Covid levels.

“That should allay market’s scepticism that ridership will not return to pre-Covid due to work-from-home phenomenon,” it said.

The Public Transport Council (PTC) on Monday said it expects SBS Transit’s annual revenue to rise by S$20.9 million, following the hike in public transport fares due to kick in later this year.

DBS’ forecast takes into consideration the mandatory 15 per cent, or S$3.14 million, that SBS Transit will have to contribute to the Public Transport Fund from its expected revenue increase.

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The overall fare increase of 7 per cent announced by the PTC on Monday was higher than the 3 per cent that DBS had pencilled into its forecasts.

DBS said it views the “significantly higher” allowable fare hike of 7 per cent as a “positive development” as it reduces SBS Transit’s reliance on government support.

It also signals a path to higher margins with further high fare hikes in the cards should the economy remain sound, added the bank.

Separately, Lim & Tan Securities also estimated that ComfortDelGro’s FY2024 earnings could grow by 5 per cent to 6 per cent on the back of higher fares.

“We view the fare increases as positive for ComfortDelGro as it would help to mitigate the inflationary cost pressures for both their bus and taxi businesses,” said its research team.