Tag Archives: Comfort Delgro

The need for mindset change in investing (2)

In any stock seminar, we often hear of the same question over and over again. What are the stocks to buy and what to sell? In fact, it is probably the only question in the mind of investors when they attend stock seminars and investment talks. We all like to hear out what is the next popular stocks in town, and hopefully to make some financial gains out of it.

Of course, we all know that good stocks generally move upwards over time in line with their earnings. But within a very short period time in terms of days, weeks or even months, share prices move in random walk fashion. So, there could be some ‘bad luck’ times when no matter how well we did our due diligence, there could be one or two stocks that fall underwater. Buying stocks is a calculated risk. And often, we cannot wait for all the uncertainties pertaining a particular stock to go away to buy it. By the time, when we are certain that the most of the uncertainties have been removed or considerably reduced, the share price would have already moved up significantly. How fast a stock price moves to reflect the fresh information depends on how efficient the stock market is. Then, there are also times, in the spur of the moment, we bought the wrong stocks or even the right stocks at a wrong price. There are also situations whereby government or the relevant authorities suddenly made changes in their policies or there could be some shocking news that hit a company and we were caught in such situations. Worst of all, we buy on hearsays, market rumours and friends’ recommendations even though they might not necessary come with bad intentions. So, there is a high chance that at any one time when we open up our stocks portfolio, there may be 1 or 2 or even more stocks that are eye-sores in an otherwise, a ‘perfect’ portfolio. Hopefully, these bad stocks form a very small percentage in the portfolio and they are overwhelmed by the bigger gains in other stocks in the portfolio.

At least for the start of our investing journey, the problem often is not because of the one or two bad stocks in the portfolio because, over time, we will get to know which stocks are good and which are bad. The whole problem is that we try to save the bad stocks in hope to make them good. This type of investing philosophy is likely to have been inherited from our young days. Right from the very early stages of our formation years, we have been conditioned by the school system to focus on subjects that we are weak in. For example, when we get 90% for Mathematics and 60% for our English, we are very often asked to focus more on our English, sometimes even at the expense of our Mathematics, in hope to bring up the grade for our English. Very often, we bring such philosophies into our investments. While some stocks advanced, there are also others that fall. As in investing psychology, we tend to be more concerned about those that fell than those that have gained. Consequently, we keep on put new monies, and worse still, sell off the good stocks and buy into those stocks that are declining in hope to make it a ‘perfect’ portfolio with all stocks in the positive territory.  But very often, things get more complicated. The declining stocks got worse and the rising stocks got better. This is where the disaster starts. Imagine we try to sell off some good stocks to average down the stock price of Noble even until today. The stock just simply sinks and sinks. As we have more and more stocks into the portfolio, it also becomes much harder to average down each time. Even blue-chip counters like SPH and Comfort-Delgro are not likely to see turns-arounds anytime soon. So, for those trying to average them may eventually give up after a few years of trying. In short, the whole portfolio ends up with a lot of stocks in negative territory and only a small quantity of good stocks on the positive side. As such, the whole stock portfolio underperformed badly.

In essence, sometimes, we have to accept some imperfection in our stock portfolio. Many investors who have been in the market for some time would probably agree with me that if we simply focus on those stocks that have gained and let go of those stocks that have incurred losses, they could have been very much better off than trying to average down the under-performing stocks. There is imperfection, but this is really the play-to-win strategy when dealing with stocks. It is just like playing a game of chess. We never hear of anyone, even world class players, winning a game of chess without losing a single chess piece. In fact, very often, they are willing to trade off high-value pieces to win the game. Even a king with just a pawn may win in the whole chess game. Very often, many investors out there try to save all the counters to bring them into the positive territory by simply averaging down but, eventually, find themselves struggling to outperform. This is because there are too many drags on the portfolio. Then, there are others who do not invest because they cannot accept even some loss counters. On the whole, it is a bigger loss because good stocks do gain in the long run. In summary, it is generally acceptable to have a few minor losses just like not every business endeavour turn into a success story. It is alright to be imperfect. We play-to-win and not to play not-to-lose in stock investing. That should be the mindset.

Note – A video clip on this investing psychology is available free in bpwlc.usefedora.com.  The video clips are part of the more than 60 video clips on the online course in InvestingNote.com, namely: Value Investing – The Essential Guide and Value Investing – The Ultimate Guide.

Disclaimer – The above arguments are the personal opinions of the writer. It is not a recommendation to buy or sell the mentioned securities, the indices or any ETFs or unit trusts related to the mentioned indices. 

Brennen has been investing in the stock market for 28 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

LTA to buy SMRT assets. How about Comfort-Delgro?

So finally, the news is out. LTA will be buying the assets of SMRT for a total sum of about $1b. With a debt position of more than $821m, I would believe that most of this money will go to paying the debts that were raised several years ago (Click here for the debt and cash position of SMRT). Perhaps, they will also allocate some of this fund for operating expense. In a nutshell, SMRT will become a MRT service provider, but the ownership of the trains will be LTA. Going forward, getting into such asset-light regime will help in the cash flow of SMRT.

Will LTA do the same for SBS Transit? To be fair and equitable, hopefully yes. This, in turn, will benefit Comfort Delgro which owns 75% of SBS Transport. For Comfort Delgro the debt and cash holding are $487.0m and $887.9m and is in net cash position compare to SMRT (Click here for the cash and net position of Comfort-Delgro). Hopefully, if LTA takes over to own the bus fleet, a special dividend could be on the card.

Disclaimer – The above view is the personal opinion of the author and does not constitute an advice to buy or sell the mentioned securities. The author shall not be held liable for any losses if reader(s) act to buy or sell the mentioned securities.

Note: Readers may wish to view to a free video clip “Debt and Cash position of SMRT and Comfort-Delgro” on bpwlc.usefedora.com. Registration is free.

Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

SMRT & Comfort Delgro : The Bulim Bus package

The Singapore Land Transport Authority (LTA) had just announced the bidders for the 1st bus transport package. SMRT appeared to be particularly aggressive bidding at an extremely low contract price of $93.7m distantly far below the next lowest bid, Comfort Delgro (CDG)’s $125.2m. This represents more than 25% off from that of Comfort Delgro. Except for SMRT, all the transport companies’ bid clustered between $125m and $154m.

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The question, of course, is SMRT’s bid suicidal? CDG has been in the bus operations in Singapore for many years and has been also operating in Australia, UK and China. Even with the wealth of experience, the SBS transit, which is a subsidiary of Comfort Delgro, has been incurring losses for 4 years running. The Singapore operation could only be marginally positive with other services like advertising. With that experience, surely CDG would be more realistic in the bid, building in sufficient but not exorbitant margin with due consideration of tight labour and changing fuel prices. With all the experience and past data, CDG has never achieved 25% net profit margin.

With the extremely low bidding price of SMRT, it is likely cut deep into the profit margin (if there is any). Perhaps, SMRT had made assumptions that oil price continue to be low at the current price of around $50-$60 per barrel and there is no problem with staffing.  Furthermore, it has to be extremely efficient in its operation. Perhaps, SMRT is banking on the fact that bus assets would then be sold to the authority, and thus saving the huge depreciation cost that are to be incurred in the mobile assets. This would help to push up the operating margin. It is, however, too early to say how things pan out.  If SMRT were to win in the tender, it is certainly a cut-throat competition for the land transport industry.

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(Brennen Pak has been a share investor for more than 25 years. He is the Principal Trainer of BP Wealth Learning Centre. He is the author of the book Building Wealth Together Through Stocks.)

Comfort Delgro – local and overseas business segments

Comfort-Delgro (CDG) report a set of good results before the Chinese New Year. All the business segments contributed positively to the final results and have been quite broad-based.

The main revenue contributors were from the bus and taxi segments. The two segments contributed 80% of the total revenue. Unfortunately, the operating margins were relatively low at 8% and 11.8% respectively.

For the bus segment, given that the Singapore operations, which contributed about two-third of the total revenue was incurring losses. This means that overseas bus operations have been the main profit contributors for this segment. Hence, any weakness in the exchange rate of British pounds, Aussie dollars or Chinese yuan may affect CDG’s bus segment business going forward.

The taxi segment is a different story. Given that revenue from the local taxi segment takes up about 3/4 of the revenue from taxi segment ($961.2m against $1280b), it is very likely that the local taxi fleet is a major profit contributor to taxi segment.

Apart from the bus and taxi segments, the other segments are also doing well. However, their revenues are relatively low compare to the bus and taxi segments. The worst segment is the rail which contributed about only 3.9%. This also provides an indication that operational profit margin from the rail for SMRT may also be thereabout.

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Positives

  1. Net cash position. (Cash of $825.8m against long-term and short-term debt of $493.7m & $243.4m respectively.)
  2. Many sources of revenue and profit contributors.
  3. Assets transfer to government should be able to unlock more cash to enable Comfort-Delgro to invest in overseas (Total amount is about $1.1 to $1.2b).
  4. Low energy cost. Fuel and electricity takes up about 9.1% of the total operating cost. Last year, it spent about $329.8m against the total operating cost of $3609.2m.
  5. Generally easier to duplicate its bus operation system to other countries compare to rail operations.

Negatives

  1. PE is about 22, a bit too rich.
  2. Any weakness in the British pounds or Aussie dollars or Chinese Yuan could affect its profitability.

(Brennen Pak has been a stock investor for more than 25 years. He has accumulated a wealth of experience in shares investment. He is the chief trainer of BP Wealth Learning Centre LLP.)

I never imagined 1,000 Spore Bus share could have turned to $50,000.

This information may be a little belated, but I think it is worth a mention following the financial results announcement of the Comfort Delgro for FY 2014.

In September 2014, Mr Goh Eng Yeow, a senior correspondent with The Straits Times wrote the following on Sunday, 21 September 2014.

 “When I started working in 1986, I had the good fortune of buying 1,000 Singapore Bus Service shares, which cost $3,000 and gave me a concessionary monthly bus travel pass.

I kept the shares, which have multiplied through various issues and stock splits into 16,040 Comfort DelGro shares and 1,200 SBS Transit shares worth a total of $41,000. That gave me a total return of 1,260 per cent over a 28-year period.”

Like Mr Goh Eng Yeow, my first stock was the Singapore Bus. But I bought two years after him in 1988. I still managed to pay for the stock of around $3 per share (at $3.08 per share to be exact). The reason why there was not much change in the share price was that there had been a catastrophic event in October 1987, which had seen most of the markets plummeted more than 20% within one day on 19 October 1987 (or widely known as Black Monday). Perhaps, at that time when I purchased the stock, the share price was still recovering from its ‘shock’. I bought the share was not because I wanted to dabble in stocks for I know nothing about stocks at that time. Like him, what I merely wanted was to be able to purchase a monthly bus stamp to enable me unlimited travels on SBS buses, a habit that we were used to during our secondary school days. This ‘privilege’ to buy the monthly bus stamp was given to shareholders of Singapore Bus only.

That, however, was not that crux of the story. The main crux was, unlike Mr Goh who kept the share, I sold mine about 2 years later, thinking that the upside potential would be limited as the main mode of transport in future would be MRT instead of public buses. That would mean that our reliance on public buses would diminish with time. I managed to sell the shares at $6.64 per share. At that time, I thought I had made a right decision with more than 100% profit in my pocket. My regret came when I read the above news in September 2014 that the share after going through share swap, bonus issues and share splits would have become 16,040 Comfort Delgro shares and 1200 SBS Transit shares. With the last closing share price of Comfort Delgro and SBS Transit at $2.87 and $1.85 per share on 18th February, the total amount would have been $48,254.80. It would have been $50k when the share price of Comfort Delgro was at $3 per share. Should I have kept the Singapore Bus shares at that time, my annualised rate of return would have been around 11% consistently for the past 25 years. If I were to include the dividends that were distributed during these years, the returns would have been much more. It might be even that the dividends received during these few years could have fully recovered the share price that I had paid for.

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Even though I am holding some Comfort Delgro shares, which I am sitting on a profit of about 100% in the last few years, I still think that I should have held that 1,000 Singapore Bus share as not many companies offer such returns over the years.

 Moral of the story:

  1. Invest with a long-term mind-set.
  2. A stock that looks hopeless in the short run may turn out to be a gem in the long run. The company with good management is the KEY! Like what I mentioned in my book “Building wealth together through stocks”, a good management can help bring up the value of the share even though the product may look ordinary.

(Brennen Pak has been a stock investor for 25 years. He is a chief trainer for BP Wealth Learning Centre LLP. He is the author of Building Wealth Together Through Stocks.)