DBS raises ComfortDelGro to ‘hold’, lifts target price to S$1.30

[SINGAPORE] DBS on Monday (Jun 22) upgraded land transport operator ComfortDelGro (CDG) to “hold” from its previous “fully valued” rating. It also raised the 12-month target price to S$1.30 from S$1.11.

The reassessment comes as early anxieties over severe margin compression in the company’s UK public transport business begin to ease, alongside a more optimistic outlook for shareholder returns.

DBS analyst Chee Zheng Feng said that initial fears of a repeat of 2022, when soaring UK inflation severely dented CDG’s public transport margins, have moderated.

This comes as UK inflation remained stable at 2.8 per cent in May, which was below consensus expectations of an increase to 3 per cent.

The UK labour market is also showing signs of cooling, with the first-quarter unemployment rate at 5 per cent compared with a low of 3.7 per cent in the third quarter of 2022. This slack is expected to restrain union wage demands and prevent a major labour cost spike.

CDG has also continued to secure new public transport tenders in the UK at attractive double-digit margins, noted the analyst. Consequently, DBS raised its public transport core operating profit forecast for the company to S$149 million from its initial S$138 million projection.

Higher dividends backed by low Sora

The brokerage has also turned more bullish on CDG’s capacity for shareholder-friendly actions, raising its projected dividend payout ratio to 85 per cent from 80 per cent.

This adjustment translates to an estimated financial year 2026 dividend of about S$0.074, offering a yield of about 6 per cent at the new S$1.30 target price.

“With three-month Sora (Singapore Overnight Rate Average) trending at around 1.08 per cent, the company should be comfortable maintaining its current debt levels while placing greater emphasis on shareholder returns,” said the analyst, pointing to recent share buybacks as a clear signal of management’s changing priorities.

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Vicom and earnings upgrades

DBS also lifted its FY2026 and FY2027 earnings forecasts for CDG by 7 per cent and 12 per cent, respectively.

Beyond the UK, the group’s 65 per cent-owned inspection and testing subsidiary, Vicom, is positioned to partially offset weaker domestic demand through high-margin on-board unit installations.

Malaysian motorists are expected to opt for the one-off S$159 installation fee to avoid paying daily Electronic Road Pricing (ERP) charges of up to S$10 ahead of the new ERP system’s implementation on Jan 1 in 2027, said the analyst.

Therefore, he raised Vicom’s profitability estimate to S$47 million from S$43 million.

Despite the upgrade, CDG’s taxi and private hire segment continues to face structural headwinds. In Singapore, competition remains fierce as Grab uses its substantial cash balance to recruit taxi drivers, causing ongoing fleet attrition for CDG. Similar competitive fleet declines are being observed in Australia.

Furthermore, the group’s UK private hire acquisition, Addison Lee, has seen its lucrative contract with a major Middle Eastern airline disrupted by significantly lower flight frequencies amid the ongoing Iran war.

Mainly dragged down by these geopolitical disruptions and the absence of elevated public transport disposal gains, CDG’s second-quarter earnings are projected to decline by 10 to 15 per cent.

However, a gradual operational recovery is anticipated in the second half of 2026 as flights to and from the Middle East resume and public transport tendering costs begin to moderate.

Shares of CDG closed flat at S$1.30 on Monday.