Why ComfortDelGro's (SGX:C52) Declining ROCE Signals a Waning Competitive Edge in a Pressured Transportation Sector

The transportation sector has long been a barometer of macroeconomic health, but in 2025, it faces a perfect storm: margin compression, regulatory turbulence, and a fragmented competitive landscape. For investors, the key question is whether a company's financial metrics reflect resilience or vulnerability in this environment. ComfortDelGro Corporation (SGX:C52), a Singapore-based transportation and logistics giant, offers a cautionary tale. Despite a debt-to-equity ratio of 35.7% and a robust interest coverage ratio of 44.1x, its declining Return on Capital Employed (ROCE) from 10% in 2018 to 8.1% in 2025 signals a waning ability to generate value from its capital base—a trend that demands closer scrutiny.

ROCE: A Barometer of Capital Efficiency

ROCE measures a company's profitability relative to its capital employed (total assets minus current liabilities). For capital-intensive businesses like ComfortDelGro, a rising ROCE indicates efficient reinvestment of capital. Conversely, a decline—especially in a stable capital base—suggests operational stagnation or misallocation. ComfortDelGro's ROCE has fallen steadily over seven years, even as its capital employed (S$5.7 billion in 2025) has remained largely unchanged. This plateau in asset deployment, coupled with a 31% increase in current liabilities, points to a company struggling to extract value from its resources.

The transportation sector itself is not immune to these challenges. Sector-wide ROCE averaged 6.8% in 2025, with improving ROI and ROE driven by net income growth. Yet ComfortDelGro's ROCE of 8.1% is a double-edged sword: it outperforms peers but lags behind its own historical benchmarks. This divergence raises a critical question: Is the decline company-specific or a symptom of broader sector headwinds?

Sector-Wide Pressures and ComfortDelGro's Response

The transportation sector in 2025 is grappling with margin compression from multiple angles. Fuel costs now account for 24% of total truckload operating expenses, while tariffs on steel and aluminum have inflated equipment costs by 9%. Regulatory uncertainty—particularly around EPA 2027 compliance and emissions standards—has further strained capital planning. Meanwhile, competition from ride-hailing services like GrabCab in Singapore and price wars in the UK have eroded margins in ComfortDelGro's core taxi and private hire segments.

ComfortDelGro has responded with strategic acquisitions (e.g., Addison Lee and A2B) and fare increases in Singapore's rail services. These moves have yielded short-term gains: operating profit margins rose from 7.2% in FY24 to 8.3% in FY26E. However, these improvements are localized and fail to address the underlying trend of declining ROCE. The company's China taxi business, for instance, remains soft, reflecting broader economic and regulatory headwinds.

Rising Liabilities and the Illusion of Stability

ComfortDelGro's balance sheet appears robust on the surface. With S$892.4 million in cash reserves and a net debt-to-EBITDA ratio of 0.28, the company has the liquidity to weather short-term shocks. Its 44.1x interest coverage ratio suggests ample capacity to service debt. Yet these metrics mask a deeper issue: the gradual increase in leverage. The debt-to-equity ratio has climbed from 17.6% in 2020 to 35.7% in 2025—a 103% increase—indicating a growing reliance on debt to fund operations.

While debt is manageable today, the transportation sector's margin compression and regulatory risks could amplify liabilities in the future. For example, ComfortDelGro's UK Metroline contracts and Singapore rail operations are subject to pricing controls and fare adjustments that limit upside potential. If operating cash flow declines due to sector-wide pressures, the company's ability to service debt could become a liability, not an asset.

Long-Term Value Creation: Innovation vs. Entrenchment

The transportation sector's future hinges on innovation—electric vehicles (EVs), autonomous fleets, and digital logistics platforms. ComfortDelGro has dabbled in EV charging and AV pilot programs, but these initiatives remain nascent. In contrast, competitors like Tesla and Rivian are leveraging their capital to dominate EV infrastructure, while tech-driven logistics firms are automating supply chains. ComfortDelGro's incremental approach risks leaving it behind in a race where capital efficiency is paramount.

Moreover, the company's governance strengths (e.g., strong ESG frameworks) are offset by weaknesses in environmental performance. While its dividend yield (4.2% in 2025) appeals to income-focused investors, a lack of reinvestment in high-growth areas could undermine long-term value creation.

Investment Implications: Reevaluation or Resilience?

ComfortDelGro's stock has historically been a defensive play, offering steady dividends and a diversified business model. However, the declining ROCE and rising leverage suggest that its “defensive” appeal is eroding. Investors must weigh whether the company can reverse its ROCE trend through operational reforms or if the decline is a harbinger of long-term stagnation.

For now, the stock is trading at a 12x P/E ratio, below its five-year average of 14x. This discount reflects market skepticism about its growth prospects. Yet in a sector where margin compression is the norm, ComfortDelGro's 8.1% ROCE still outperforms peers. The key question for investors is whether this margin of safety justifies a long-term stake—or if it's time to pivot toward companies with stronger capital efficiency and innovation pipelines.

Conclusion: A Ticking Clock for Capital Efficiency

ComfortDelGro's declining ROCE is not a death knell but a warning bell. In a sector defined by volatility and regulatory shifts, capital efficiency is the cornerstone of long-term value creation. While the company's current metrics suggest stability, its inability to reverse the ROCE decline—and its lag in innovation—pose significant risks. For investors, the decision to hold or divest hinges on one question: Can ComfortDelGro reinvent itself before the sector's pressures become irreversible? Until then, the stock remains a high-risk, high-reward proposition in a market where capital efficiency is the ultimate currency.