ComfortDelGro Vs SBS Transit Ltd: Which Is A Better Investment?
“Should I just pay more and take the taxi? Or should I just stick to the bus?”
I think many of us have asked ourselves the same question whenever we decide what form of transport to take.
You might think that this is a lead-up – like the other Seedly articles – where maybe we talk about how to budget for transport or something.
This, however, is going to be a very different article.
SBS Transit Ltd (SGX: S61)
SBS Transit’s business segments can be broadly categorised into Public Transport Services and Other Commercial Services.
The Public Transport Services include the operations of basic bus services that we are most familiar with but also includes the operations of the North East Line (ever wondered why this is the “purple” line?), Downtown Line and the Seng Kang and Punggol LRT system among others. All in all, SBS Transit operates 3,471 buses, traverses 222 bus routes, and has 192 trains in its fleet.
The Other Commercial Services segment includes advertising and the rental of commercial spaces. This includes advertising on buses, trains, and bus hubs. However, this only forms a very small proportion of SBS Transit’s total revenue.
2. ComfortDelGro Corporation Ltd (SGX: C52)
When we think of ComfortDelGro (CDG), the first image that comes to mind is the blue and yellow fleet of taxis. However, CDG has more business segments than that. CDG actually owns a large proportion of SBS Transit.
They also operate the Automotive Engineering Services, Inspection and Testing Services, as well as the ComfortDelGro Driving Centre. CDG’s operations span Australia, China, and the UK, however, Singapore contributes almost 60% of its revenue.
With operations that span over so many different segments and countries, I am optimistic that the proliferation of Grab and GoJek will not lead to the demise of this company.
Revenue and Profitability
|FYE 31.12.18||FYE 31.12.18|
|Operating Profit Margin||7.03%||11.53%|
|Net Profit Margin||5.79%||9.43%|
EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortisation. This just means earnings without these associated costs. Operating Profit refers to EBIT or Earnings Before Interests and Taxes. Net Profit refers to revenue minus all sorts of costs.
The margins of these metrics refer to the figures over revenue. For example, the EBITDA margin is EBITDA divided by sales.
It is quite obvious that CDG brings in higher revenue than SBS Transit while having higher profitability as well. Looking at these two criteria, CDG is the obvious winner here.
In fact, if you’re curious about any other stocks or have any other personal finance related questions, why not try asking in the Seedly Q&A? The community’s really active and they give really good answers too!
Balance Sheet Strength
|FYE 31.12.18||FYE 31.12.18|
|Interest Coverage Ratio||28.7||38.5|
The current ratio is a figure used to represent short-term liquidity, which is how well a business can fulfil their short-term financial obligations. The higher the current ratio, the better.
Debt/Assets is a measure of how much debt there is relative to a company’s total assets. Typically, the lower the ratio, the better position the company should be in when paying off debt.
Debt/EBITDA measures how much debt there is relative to earnings. The lower the ratio, the better.
Interest Coverage Ratio represents how much earnings there is relative to interest payments. Again, the lower the ratio, the better.
CDG has a higher current ratio than SBS Transit, which suggests that CDG might be better off when dealing with short-term financial obligations.
However, CDG has a higher Debt/Assets ratio and Debt/EBITDA ratio. This implies that SBS Transit is slightly better at dealing with debt.
On the other hand, CDG has a higher interest coverage ratio than SBS, which implies that CDG is better able to deal with interest payments than SBS.
It’s important to note that based on these ratios, it is hard to definitively conclude which company’s balance sheet is better. However, these ratios tell us how well a company can deal with financial obligations – the better they are at being able to deal with them, the more unlikely they might default on the payments.
|FYE 31.12.18||FYE 31.12.18|
|Return on Assets (ROA)||7.60%||7.09%|
|Return on Equity (ROE)||16.9%||11.6%|
|Return on Invested Capital (ROIC)||14.9%||12.1%|
An important question to ask when comparing both companies would be which is more efficient in their use of assets and resources.
Return on Assets (ROA) measures how efficient a firm is in generating profits through their assets. The formula for ROA is Net Operating Profit After Tax (NOPAT) divided by Total Assets.
Return on Equity(ROE) is a measure of how well a company uses shareholders equity to generate earnings growth. ROE is calculated by taking Net Income divided by Book Value of Equity.
Return On Invested Capital (ROIC) is a measure of how profitable a company is relative to debt and equity capital invested. It is calculated by taking NOPAT divided by (Book Value of Debt+ Book of Value of Equity-Cash). This is an important metric to consider when compared to the cost of capital for a firm.
Despite weaker earnings, SBS seems to be more efficient than CDG for all three metrics. The metric with the biggest difference was the ROE, followed by ROIC and then ROA. This implies that SBS is more efficient in using investor’s capital to generate earnings as compared to CDG. This is why SBS is the clear winner here.
To read my in-depth analysis of SBS Transit, click here.
|P/E Ratio||14.74 X||17.18 X|
|P/S Ratio||0.88 X||1.36 X|
|P/B Ratio||2.43 X||1.97 X|
Market Cap refers to the market value of a listed company’s outstanding shares.
It is calculated by taking the total number of shares outstanding multiplied by the share price. This is a common metric used to determine the size of a company.
P/E, P/B, and P/S ratios are all different metrics used to value a company. These ratios represent how much you are willing to pay through the purchase of shares for a certain portion of a company’s performance.
The P/E ratio represents how much you are willing to pay for every one dollar of the company’s earnings. For the P/B ratio, it represents the price for every $1 of a company’s book value per share. Lastly, the P/S ratio represents the price of every $1 of revenue per share.
The higher these ratios are, the more “expensive” the stock is.
It is obvious that CDG has the highest market cap. The P/E and P/S ratio of CDG is also higher than SBS, while the P/B ratio of CDG is lower. This could imply that the shares of CDG are more highly priced than SBS.
The differences in the valuation of the shares could, however, be explained by various reasons.
I noticed some interesting trends here when we compare these ratios with their companion variables. For example, the higher P/E ratio for CDG could be due to the market believing that the firm will have higher growth in the future as compared to SBS. The higher P/S ratio of CDG could also be attributed to the higher net profit margin of the firm. Conversely, SBS could have a higher P/B ratio because it has a higher ROE.
Both ComfortDelGro and SBS Transit are staples in Singaporeans’ everyday lives, so it’s very unlikely that they will be going anywhere soon.
So if you’re looking to include companies in the Public Transport sector into your portfolio, it’s definitely worth keeping an eye on these two companies.
- ComfortDelGro has higher revenue and profitability
- There’s no clear winner when it comes to balance sheet strength
- SBS is more efficient in its use of capital and resources
- ComfortDelGro shares are more expensive based on its P/E and P/S ratio
So… Which Stock Should I Invest In?
If you’re interested, I have given a much more in-depth analysis of each of these stocks on the Seedly Q&A platform. Other users have also shared their views and perspectives, so it would be good to have a look at what other community members have to say before doing your own research and making your decision!
I mean… They’re like the only ones in Singapore also right…
SBS Transit Ltd (SGX: S61)
ComfortDelGro Corporation Ltd (SGX: C52)
SBS Transit vs ComfortDelgro: Which stock would you pick and why? Share with us in the comments below!