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ComfortDelGro 1H2025: Strong Overseas Growth and Future Capabilities · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome to the Deep Dive. We're here again to cut through the noise and get
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  straight to the insights you need.
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  Today, we're looking at Comfort Delgro. They've just released their first half
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  2025 financials, and there's quite a bit to unpack.
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  We've got the reports right here. And our mission, as always,
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  is to figure out what these numbers really mean. What's the strategy?
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  Where are they heading? Ready to get informed fast.
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  Okay, so let's hit those big headlines straight away. First half 2025,
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  revenue up a pretty significant 14.4%, hitting $2.42 billion.
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  And their profit, Pia TMI specifically, that also climbed 11.2% increase,
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  landing at $106.0 million.
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  But you know, here's the part that really caught my eye. For the first time,
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  their overseas revenues are now more than 50% of the total. That's a huge milestone, right?
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  From local giant to, well, a global player. That's absolutely right.
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  Those headline figures are strong, definitely show a company making moves.
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  But like you said, that 50 percent overseas revenue mark, that's fascinating.
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  It's not just about growth. It's about where that growth is coming from and the strategy behind it.
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  So, yeah, this deep dive, we need to go beyond just the numbers and get into the why.
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  What's driving this shift? What does it mean long term? Okay, let's do that.
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  That 14.4% revenue jump, it's impressive. It tells a story.
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  So what were the key ingredients, the main drivers behind that number?
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  Well, there were a couple of major factors.
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  A huge chunk of it, honestly, came from the acquisitions they made back in 2024.
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  Think Addison Lee and CMAC over in the UK, those private mobility guys in ATB
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  in Australia. Those businesses are now fully contributing for the whole period.
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  Just those acquisitions alone added about $252.9 million to the revenue line.
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  So that's a big piece right there. And then on top of that, you've got expansion
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  in public transport, new contracts kicking in like Metroline Manchester,
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  which started up in January this year.
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  Plus, they renewed some London public bus contracts and, crucially, at better margins.
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  So acquisitions in public transport wins, basically.
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  Right. Acquisitions are a clear
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  boost. And you mentioned the overseas revenue now being the majority.
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  Plus, that overseas operating profit grew by something like,
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  what, 67.8% year on year?
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  Yeah, a very strong jump in overseas operating profit. That's massive.
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  It really signals they're not just dabbling internationally anymore.
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  So what does this strategic shift, this re-weighting towards overseas actually
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  mean for Comfort Delgore's overall strategy and maybe its resilience?
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  It's incredibly significant. It points directly to a strategy of diversification really paying off.
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  They're lessening their dependence on just the Singapore market,
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  which makes them inherently more resilient to any local bumps in the road.
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  It also shows they're getting pretty good at winning big contracts and integrating
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  these acquired businesses overseas, especially in places like the UK, EU and Australia.
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  They're building a real global presence.
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  Okay, so diversification, better resilience.
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  Makes sense. But it's worth noting something here. While the overall profit
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  did grow, the actual PTMI margin dipped slightly, just a little,
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  from 4.5% down to 4.4%. Ah, okay.
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  So revenue's up strongly, but the profit margin softened a tiny bit. Why is that?
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  Well, if you connect this to the bigger picture, that slight dip,
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  even with strong revenue growth, often signals that operating costs have gone
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  up, or maybe there are other financial adjustments happening.
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  It likely reflects the costs associated with that very expansion and integrating
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  those new businesses we were just talking about.
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  It's kind of the expected trade-off when you're growing aggressively through acquisition.
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  Got it. So maybe not a sign of weakness, but more a reflection of the investment
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  needed for that growth. That makes sense.
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  Okay, let's dive a bit deeper then. How did the different business segments
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  perform? Where was the real strength?
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  And were there any areas facing tougher challenges? Sure.
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  Let's start with public transport. That was definitely the star performer in terms of profit growth.
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  Revenue was up a solid 3.7%, which is decent, but the operating profit,
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  that surged by almost 30%. 29.6%, to be exact. Wow, okay.
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  Why such a big jump in profit there? Largely down to those improved margins
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  we mentioned from the London bus contract renewals.
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  Getting better terms makes a big difference. And the start of the Metroline
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  Manchester contract helped too.
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  Also, seeing driver shortages easing up a bit in Australia helps operations
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  run smoother, which boosts the bottom line.
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  Now, it wasn't all upside. They did hand over the Gerong West bus package back
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  in Singapore, which offsets some
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  of the gains, but overall, a very strong performance for public transport.
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  OK, clear strength there. What about the taxi and private hire segment?
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  The traditional core, almost. All right, so taxi and private hire.
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  This is interesting. Massive revenue growth here, up 58.7%. Huge jump.
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  58.7%. That's enormous. Mostly acquisitions again.
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  Primarily, yes. That's reflecting the full impact of adding Addison Lee and A to B.
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  They bring in a lot of revenue. But, and this is the crucial part,
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  the operating profit growth was much, much lower. Only 6.8%. Okay, hold on.
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  Revenue skyrockets by nearly 60%, but operating profit barely nudges up 7%.
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  That seems like a big disconnect. What's happening there?
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  Exactly. It raises that important question for you, the listener. Why the gap?
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  A couple of things are at play. First, the segment had to absorb something called
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  Purchase Price Allocation Amortization PPA for short.
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  It's basically an accounting charge that comes after an acquisition,
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  and it reduces the reported profit on paper for several years.
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  It doesn't mean the underlying business isn't profitable, but it hits the reported
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  number. Ah, okay. An accounting effect dampening the profit figure.
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  Precisely. And on top of that, they're facing really intense competition,
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  especially from ride-hailing platforms in Singapore.
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  Plus, there was some economic softness impacting their business in China.
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  So PPA plus competition equals squeezed profit growth despite higher revenue. Understood.
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  That explains the disparity. What about the other segments? Pick rundown.
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  Other private transport did well.
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  Revenue up 23.6 percent and operating profit jumped a very strong 124.0 percent.
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  That was driven by more business in Singapore private buses,
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  Australian patient transport and the CMA acquisition contribution.
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  And inspection and testing services think vehicle inspections saw revenue grow
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  24.5 percent and operating profit up 12.5 percent, mainly boosted by fitting
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  more onboard units for Singapore's new ERP 2.0 system.
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  Right. So a lot of this growth, especially the acquisitions,
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  the new bus contracts, the fleet upgrades, it sounds expensive,
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  requires serious investment up front.
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  How is Comfort Dell Grow actually funding all of this? Is their balance sheet strong enough?
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  That's the critical question, isn't it? When you see this level of activity,
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  And yes, their capital expenditure, or CapEx, went up significantly.
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  Net CapEx jumped to $497.0 million in the first half.
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  Compare that to $196.8 million in the same period last year.
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  Big increase. What did that spending go on?
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  A lot of it was tangible assets for those new contracts, like 452 buses,
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  specifically for the Metrolene Manchester contract.
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  And they also invested in 174 electric buses for London.
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  So big commitments to expanding the fleet and importantly, making it greener.
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  OK, so spending big on future capacity and electrification, how did that impact
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  their debt levels? Well, naturally, higher spending meant higher borrowings.
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  Their net debt rose quite a bit from around $218 million to over $600 million,
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  $603.7 million to be precise.
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  And that pushed their net gearing ratio up from 6.7 percent to 16.6 percent.
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  Nearly tripling the net debt. Should we be concerned about that level of borrowing?
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  Not necessarily. You have to connect it to the strategy.
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  This isn't debt taken on because the business is struggling.
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  It reflects deliberate strategic investment in growth and future-proofing.
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  Think of it as investing heavily now for much bigger returns later.
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  Management actually indicated they still have borrowing headroom,
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  somewhere between $0.2 billion and $0.7 billion.
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  They seem confident the balance sheet can support these moves.
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  The cash flow for the period did show a net outflow of $19.3 million.
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  But again, that's largely because of these very high planned capital investments.
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  It's the cost of building for the future. Right. Strategic debt for strategic
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  growth. Makes sense in context.
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  Okay, so looking ahead then, what's on the horizon for Comfort Delgro?
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  What are their priorities moving forward, especially in that key public transport
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  area? Yeah, their outlook seems quite focused.
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  For public transport in Singapore, they're expecting rail revenue to grow as ridership picks up.
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  They do need to manage rising manpower costs, though they expect some relief
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  from lower fuel and energy prices.
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  And they're waiting to hear about the Tampines bus package renewal.
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  And internationally, where they're growing so fast. Big focus there.
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  In the UK and EU, they expect those London bus contract renewals to keep coming
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  through at better margins.
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  And they're actively bidding on some major projects. Things like the Liverpool public bus franchise.
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  There's a metro line in Stockholm, the E40, starting late 2025 through a joint
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  venture. And they're also in a bid for the Copenhagen metro rail tender.
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  Winning even one of those would be significant. So aiming for major contracts
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  in Europe, what about Australia?
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  Australia is definitely a key growth market for them. They just started operating
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  new metropolitan zero-emission bus franchises in Victoria back in July.
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  That immediately boosted their market share there by 30%, which is a big win.
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  And they're not stopping. They're involved in the Sydney Metro West rail tender
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  and also bidding to operate Melbourne's Metro Lines.
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  So very active down under, especially in rail and sustainable transport.
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  Okay, so a lot happening in public transport globally. What about the other areas? Taxi?
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  For taxi and private hire, the outlook is a bit more mixed. They expect the
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  premium end and the large corporate B2B segment to hold steady. But,
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  the SME business-to-business side, and the general consumer mass market.
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  That's likely to remain under pressure.
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  Economic uncertainty plays a role, plus that ongoing intense competition from ride-hailing apps.
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  Or an inspection and testing revenue should stay high for a while because of
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  that nationwide ERP 2.0 OBU installation push.
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  Right. Now, beyond these core segments, you touched on future capabilities earlier.
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  The tech side, autonomous vehicles, AI, how real is this? Is it just R&D or
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  is it actually part of their operational strategy now? Oh, it seems quite real
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  and increasingly operational.
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  They're not just talking about it. They're actively building capabilities.
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  With autonomous vehicles, for instance, they already have robotaxes carrying passengers in China.
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  And they're running AV buses in Singapore, too.
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  Importantly, they're thinking about the transition. They're part of Singapore's
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  AV steering committee and even launching training to help today's drivers potentially
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  move into roles supporting the AV industry tomorrow.
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  That's quite forward thinking. That is interesting. And AI. Yeah,
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  they're using AI quite practically.
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  Metrolene in London, for example, is using AI for scheduling optimization.
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  They claim it saves passengers up to 2,000 hours daily. That's the tangible benefit.
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  And their rail division, SBSD Rail, is using AI for predictive maintenance on
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  the trains, trying to catch problems before they happen, reduce downtime.
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  So yes, applying AI to improve efficiency and service quality right now.
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  It definitely sounds like they're making some bold, calculated bets on technology
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  alongside the international expansion.
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  So with all this spending, all these strategic shifts, how does it actually
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  connect back to value for shareholders?
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  Are they managing to reward investors while investing so heavily in the future?
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  That seems to be the goal, yes. Yeah. They're clearly trying to balance growth
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  with returns. They declared an interim dividend of 3.91 cents per share.
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  Okay, and how does that compare? That's actually an 11.1% increase compared
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  to the previous year's interim dividend.
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  And it represents an 80% payout ratio of their earnings.
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  So even while making these significant investments and taking on more debt for
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  growth, they're still increasing the cash return to shareholders.
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  That signals management confidence, I think, in their strategy and their ability
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  to deliver both growth and consistent returns.
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  So wrapping this up then, what does this all mean for you, a listener?
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  Comfort Dell Gros' first half of 2025.
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  It paints a picture of a company really in the midst of a major transition,
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  doesn't it? They're growing, yes, driven by those strategic acquisitions.
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  They're expanding aggressively overseas, particularly in public transport,
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  which now forms the majority of their revenue.
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  And they're putting serious money into future tech like AI and AVs.
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  Now, they are juggling challenges, fierce competition in taxis, rising costs.
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  But it seems they have a clear forward-looking strategy, and they're using their
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  balance sheet quite deliberately to fund it, while still keeping shareholders
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  reasonably happy with dividends. I think what really stands out is that balancing act you mentioned.
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  They're investing heavily using strategic debt, aiming for long-term transformation,
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  while delivering pretty strong current performance overall.
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  That increasing overseas footprint, the focus on public transport,
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  the bets on advanced mobility, it all points to a company actively creating
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  to reshape itself for the future.
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  The big question, I suppose, for you to think about is, how effectively will
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  this more diversified global tech-enabled portfolio make them truly resilient
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  against future market shifts, and the intense competition that's surely not
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  going away in the transport world.
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  A really interesting question to keep in mind as we watch how this strategy unfolds.
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  Okay, that brings us to the end of this deep dive into Comfort DelGro's 1H 2025 results.
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  We hope this gave you the clarity and context you were looking for.
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  Music.