ComfortDelGro JV wins contract to operate rail services in Auckland

MAINBOARD-LISTED ComfortDelGro Corporation C52 : C52 0%has been awarded a contract worth S$1.13 billion to operate rail services in Auckland, New Zealand, the transport operator said in a statement on Friday.

The group will operate the rail services through Auckland One Rail (AOR), its 50 per cent-owned joint venture (JV) with Australian rail operator and maintenance company UGL Rail Services.

The contract, lasting for an initial term of eight years with the opportunity for further extensions, will begin on Jan 16, 2022.

ComfortDelGro's managing director Yang Ban Seng called the deal a "milestone" as it is the group's first rail operation outside of Singapore and its maiden entry into New Zealand. ComfortDelGro has been operating commuter rail services in Singapore through its listed subsidiary, SBS Transit, since 2003.

AOR will be responsible for passenger train operations across the network. This includes providing drivers, developing timetables, operating and maintaining stations, security, customer service and protecting revenue.

The Auckland Rail network, with a pre-Covid-19 annual ridership of 21 million, is the largest in New Zealand. It has four lines and 42 stations, as well as 72 three-car electric multiple unit (EMU) trains and eight diesel multiple unit trains, which will grow to 44 stations and 95 EMU trains when Auckland's new City Rail Link opens in 2024.

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CGS-CIMB analysts Ong Khang Chuen and Darren Ong on Friday said they are positive on the win, and expect an earnings per share accretion of 1.1 per cent to 1.8 per cent from the "asset-light business model with stable cash flow and defensive earnings". The analysts had raised their target price on the counter to S$1.80 from S$1.60, while maintaining their "add" call.

DBS' broker team on Friday also said the win was positive, although it added that "achieving large profitability could take time". The contract, which requires AOR to take over all present staff from the current operator, may limit cost savings in the near term. The expansion of the network in 2024 could also increase maintenance costs, the broker team said.

DBS estimates AOR could contribute around S$3.5 million to S$7.5 million per year to ComfortDelGro's share of results in the JV, but there may be further upsides if AOR receives grants from the government for maintaining rail networks and infrastructure.

ComfortDelGro has also been looking to expand in the rail sector internationally besides New Zealand. It previously announced it has tendered for a rail project in Sydney, Australia. The Business Times understands that ComfortDelGro has a 40 per cent stake in the consortium bidding for the Sydney project, with the other partners being UGL and Coleman Rail. The scope of the contract, for a new metro railway line connecting Greater Western Sydney and the new Western Sydney International (Nancy-Bird Walton) Airport, will include maintenance works and installation of tracks, mechanical, signalling and electrical systems.

Last year, ComfortDelGro also entered into a collaboration agreement with France-based transport companies RATP Dev and Alstom to jointly bid for two upcoming metro lines in the Greater Paris region , which are part of the Grand Paris Express metro project.

Shares of ComfortDelGro closed at S$1.60 on Thursday, down S$0.02 or 1.2 per cent.

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