4 insights from ComfortDelGro's latest business update

Last week, ComfortDelGro Corporation Ltd (SGX: C52), or CDG, released a business update.

Within it was a description of the group's business performance for the first quarter of the fiscal year 2020 (1Q 2020), as well as how the group is coping with the Covid-19 pandemic.

As a recap, CDG is one of the largest land transport companies in the world with a total fleet size of around 41,600 buses, taxis and rental vehicles.

The group is present in Singapore, Australia, China, the United Kingdom, Ireland, Vietnam and Malaysia.

Here are four insights from the land transport conglomerate's latest business update.

Pubic transport services badly affected

Public transport services have been designated as "essential services" in Singapore and other countries.

The good news is that CDG has been allowed to continue operations with minimal disruptions.

However, lockdowns and social distancing measures have significantly reduced ridership and mileage.

In Singapore, public bus and rail ridership has plunged to around 25 per cent to 30 per cent of their pre-pandemic levels.

For the UK, public bus frequency has been reduced to weekend levels, while for Australia, some service changes have been implemented.

The result of the above is that revenue will almost surely take a steep dive while operating costs still need to be incurred.

Without a decent level of ridership, it will be tough for this division to perform as it did before Covid-19 hit our shores.

Net profit took a sharp dive

For 1Q 2020, CDG's revenue dipped by 9 per cent year on year to $862.4 million.

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The decline was mainly due to a decrease in revenue from its two main divisions - taxi and public transport services.

For taxi division, Covid-19 relief schemes announced by CDG have been extended until September this year and will be reviewed further depending on how the pandemic evolves.

In response to Covid-19 lockdowns, China taxi rentals have been almost fully waived.

Operating profit for the group dived by 48 per cent year on year to S$55.9 million, while net profit shrank by almost 49 per cent year on year to S$36 million.

Singapore still makes up the bulk of the business

Though CDG has been actively expanding overseas through acquisitions in 2018 and 2019, the bulk of the group's business is still Singapore-based.

In terms of revenue contribution, Singapore made up 59 per cent of total group revenue for 1Q 2020, down slightly from 59.2 per cent back in 1Q 2019.

For operating profit contribution, Singapore took up the lion's share at 75 per cent, up from 67.5 per cent in the same quarter last year.

The reason for this increase in market share is due to Covid-19 eroding CDG's profitability in China.

Bad weather and the pandemic's impact on tourism also significantly lowered operating profit contribution from the UK.

Operating margin declines across core divisions

CDG disclosed its operating margins by division for the current quarter, and the results aren't pretty.

Its two core divisions, public transport services and taxi, both witnessed declines in operating margins.

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For public transport services, the operating margin fell from 8 per cent in 1Q 2019 to 5.1 per cent in 1Q 2020.

Revenue only fell by 4.2 per cent year on year for its public transport division, but due to a relatively high base of fixed costs resulted in operating profit plunging by 38.8 per cent over the same period.

For taxi division, revenue fell by 25.7 per cent year on year due to lower ridership, but operating profit plummeted 91.5 per cent year on year to just $2.4 million as CDG doled out support measures as part of its Covid-19 relief scheme.

Operating margin thus plunged from 16.4 per cent to just 1.9 per cent.

Get smart: The worst is yet to come

Investors should brace themselves for a much harsher quarter as the second quarter saw lockdowns and border closures in most countries around the world.

Though China has eased up on its lockdown during this period, it does not contribute a significant portion to both revenue and operating profit for the group.

There may be much more pain to come, as CDG also warned that its taxi division will suffer a full-year loss, the first time in the history of the group.

For the latest updates on the coronavirus, visit here.

This article was first published in The Smart Investor.