Tag Archives: Land Transport

Comfort-Delgro and Uber tie-up

Just like any investors out there, when I first heard of the tie-up between Uber and Comfort-Delgro (CDG), my first question was – “Is it really a good deal for CDG?” Valued at $642m, CDG is to pay $295m in cash for 51% of Uber’s stake in Lion City Holdings (LCH). The deal is likely to make CDG swings from a cash-positive company to a cash negative company after taking into account of all of its debts. LCH owns and operates Lion City Rentals (LCR) which has 14,000 vehicles in their stables. Of course, the deal comes with sharing of resources such as centralizing the fleet management to dispatch vehicles as well as sharing the servicing facilities and consumables.  While, it enables CDG cabbies access into Uber’s database and vice versa, I am not exactly sure if the benefits are that direct as against giving more incentives to the taxi drivers, such as cash rebates, reduced taxi rentals and incentives to retain existing drivers in order to buy time for CDG to develop more concrete business ideas to counter the more potent threats from Grab.  There is always a limit in which one can drive on the road irrespective of the demand.  As one of the biggest, if not the biggest, transport company in the world, does it really benefit from the deal by buying into a car rental company?  It is indeed like trying to enlarge the world’s biggest airport when not many airplanes call in it. The solution would have been more direct to bring more drivers to take advantage of the platform through more direct cash incentives. Perhaps the main consideration for CDG is the worry of losing the taxi-rental revenue, but so far its answer to the eroding taxi rental seemed not been able to nip the problem at its bud.  The crux of the issue is not the lack of vehicles, but a lack of drivers. They are unwilling to pay for a higher taxi rental when there is a cheaper alternative to rent either a taxi or a rental car somewhere.

The way it is, the collaboration with the once-upon-a time competitor is only a part solution, perhaps a comparatively lesser one. In fact, putting Grab and Uber side by side, the threat from Grab seemed to be more lethal than from Uber. Grab has good funding supports and is willing to get things done even at the expense of steep losses while Uber has been infested with many more pertinent issues such as operational problems and their ‘mis-steps’ with the various local authorities in many parts of the world. The loss of the taxi rental business in Singapore seemed to be more important to CDG than to Uber. Perhaps, to Uber, it only shaves off 1-2% percent off their financial statements at most and that is why CDG seemed to be getting the shorter end of the stick at least from an observer’s point of view.   Meanwhile, Grab seemed to be able to initiate better solutions such as to collaborate with the taxi companies other than CDG to level-up the playing field.  In fact, the several initiatives offered by Grab appeared to be extremely lethal to CGD. It gave special incentives to CDG cabbies that are willing to crossover to the Grab camp. The impact appeared to be more direct, and that probably accounted for the 14% decrease or a reduction of 2,416 operational taxis from 16,722 to 14,306 to date. With an enlarged set of drivers and with more taxi companies joining its stables, it formed a huge firepower base to cripple the once-upon-a-time untouchable rental taxi structure of CDG. More recently, it took advantage of the more frequent MRT train break-downs to work with SMRT by offering more immediate solutions to irate commuters who were either stuck during those breakdowns as well as to those who were taken by surprises of the temporary earlier closing hours or later opening hours of the MRT stations.

Even with a few technocrats who threw their weights behind the deal, I am still of the opinion that there is really nothing to celebrate about for CDG. Perhaps, these experts drive their own cars.

Disclaimer – The above arguments are the personal opinions of the writer. It is not a recommendation to buy or sell the mentioned security.  

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.

Comfort Delgro

Of late, Comfort-Delgro (CDG), together with some stocks like SPH and Noble, were in the limelight. Obviously, a sea of pessimism has been haunting the stock in the last few weeks. Today, its share price is $2.28. It had broken through the ‘very strong’ support level that many traders described as between $2.37 and $2.40. The strong support had lived to its name for several months, but still it was finally broken. Frankly, there has been a swing in the sentiment.

For the past two years in 2015 and 2016, the market appeared to be extremely optimistic over this stock. It started off with the falling fuel price in end 2014. Then came a revision of transport fares and, finally, the news on LTA taking over of operating assets from the transport operators in mid-2016. Good news had obviously fueled the market to become overly excited and the share price of CDG was pushed above $3.00 in 2015. At the price of $3.00 the PE ranged between 20 and 23 from 2014 to 2016 and was trading between 2 and 2.5 above book value. It is not exactly expensive (of course without the luxury of comparing against similar companies). Perhaps, its growth potential has prompted many analysts to be more optimistic with buy calls above $3. Even in the year 2016, when the market price was gradually sinking, many analysts were still recommending buy calls on the stock with target prices above $3.00.

Obviously, there was too much good news feeding into the stock price. Frankly, I felt alone when everyone was optimistic, but that gave me pockets of opportunities to scale down my CDG holdings in the Q3 and Q4 2015. It had a good run since mid-2012 from around $1.50 per share. In fact, I had pointed out to past students be aware of the threat from Uber and Grab almost 2 years ago amidst the widespread optimism over this stock. It was difficult to know the extent of the damage it can cause on the taxi services. My initial assessment was also that there could be some kind of government intervention, but it appeared to be almost none as we know now.

In fact, even in 2016 when the share price was slowly sinking, most analysts were still recommending buys with target prices above $3.00. The discomfort prompted me again to write the blog in May last year :

 http://blog.bpwlc.com.sg/feeling-uncomfortable-about-comfort-delgro.

In hindsight, I am happy that I was able to reduce my shareholdings at a good price. With most of the shares bought before 2012, and I had sold about one-third of my shareholding above $3.00, I have a relatively comfortable margin of safety even at this on-going price (today close at $2.28). However, I still regretted that I did not follow through my conviction to sell 50% of my holdings. My expectation of the government intervention and a special dividend for the sale of assets to LTA did not materialize. Also, perhaps, I have emotional attachment to this stock. Its predecessor, SBS Bus, was my first stock that I ever purchased and sold at more than 100% profit in matter of 2 years more than 20 years ago. This experience had actually set me off in this adventurous stock investing journey.      

Brennen has been investing in the stock market for 27 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.

Technology destroyed some traditional businesses (2): Comfort Delgro

Until a few years ago, Comfort Delgro has been in a very comfortable position. The business model that has been used in Singapore was able to be duplicated and adapted locally in other important cities in Australia, the United Kingdom (UK), China, Vietnam and Malaysia. The whole business centred round the traditional land transport operations and provided the company with various sources of income. The share price doubled year from mid-2012 of around $1.50 to more than $3 per share in mid-2015. Some might say that that was not exactly a star performer, but I would say that the stock performance was great in view of its ‘old-economy’, almost recession proof, traditional land transport business. It is not easy to find a traditional business whose share price that could double in a matter of three years. With the euro crisis brewing at that time, most blue chips stocks were not really performing following the run up after the global financial crisis. So given the backdrop of the unexciting STI at that time, Comfort Delgro stood up among blue-chips stocks. It was the top performing stock in year 2015.

Now the situation has turned. Rental cars Uber and Grab have been making headlines of late. They took many traditional taxi businesses in many cities by storm with their aggressive pricing policies even though the companies are still incurring losses. They seemed determined to break out the traditional taxi business at all cost. The situation in Singapore is no exception. Comfort Delgro, being the biggest taxi operator in Singapore is obviously the victim of this onslaught. By today, Comfort Delgro share price has just sunk passed the $2.37 level, which has been a very strong support threshold for several months. The situation is not all pleasant for the Comfort Delgro at the moment.

Brennen has been investing in the stock market for 27 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.

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.

Feeling uncomfortable about Comfort-Delgro

I remember I had informed students in the Facebook closed group in mid-2015 that Comfort-Delgro (CD) has probably plateau after pricing all the good news. Recently, I repeated once more on 13 April 2015 when the share price hit $2.91. On the very day, the STI moved up 75 points and following an announcement on additional requirements for rental cars, such as Uber and Grab-taxi. In the long run, rental car services can pose a direct threat to CD’s taxi business.

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In retrospect, crossing $3.00 per share had been a great feat in view that it was an essential service stock. The share price was only around $1.50 per share 4 years ago. Up until 2015, it had been increasing year after year for 4 years running. Prior to that, the share price had been quite sluggish, for it was an ‘old-economy’ unexciting stock. The SMRT, on the other hand, seemed to be enjoying a greater fanfare as new lines were built. (However, that cannot be said of SMRT share price during that time.) Fundamentally, Comfort-Delgro is rock-solid compared to the SMRT. I like the stock very much. Just based purely on its cash hoard in 2014/2015, it could have paid out all its long- & short-term loans fully without incurring a cent of debt, making it a debt-free company, and yet maintaining a status of one of the largest (if not the largest) transport company by asset in the world. On the other hand, SMRT was struggling even to this very day to make profit out of its core business, ie rail operations. SMRT managed to keep itself in the black mainly because of advertising and rental businesses. These are not their core businesses.

As the business grew quarters after quarters due to its increasing presence overseas such as China, Australia and UK, so was the share price of CD. Along with this growth story were a spat of good news in the past 2-3 years such falling oil price and the land transport sector under-going complete overhaul into a asset-light regime. This has led many analysts to become more optimistic in their approach. Some even set their target price to as high as $3.46. By the mid-2015, there were at least three analysts with target prices above $3.40, and quite a number of them projected it to be at least $3.00 per share. In the best of my memory, I was not sure if any analyst offered a ‘sell’ call as the general outlook looked rosy. Perhaps, all these analyses were based on the assumption that the existing assets will be sold to the government, and the ‘windfall’ from the sale of the assets is to be returned to the shareholders in the form of special dividends.

Taking a leaf from the lesson learnt in OSIM’s case that too much good news that feed into ever-increasing share price can make a sad ending to even a fairy tale story, I decide that I should go against the tide to sell at least some shareholding of my CD stocks. Having doubled my investments over the years, I should have a more than 50% buffer, even if the stock price kept coming down gradually. In other words, I need not sell them hurriedly. After all, it is a fairly liquid stock and good news was still feeding into the share price. It was even touted to be the best performing stock at that time. I started scaling down my CD shares in mid-2015, each time taking advantage of its short-term high. By today, it is 11 months since I made the first sell of my CD shares.

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In the meantime, the oil price continued to sink and it did not bottom until February of 2016. However this had already been reflected in the share price. Perhaps, the decreasing oil price had helped CD share price to bleep slightly above $3.00 per share. Meanwhile, the news of rental cars, like Uber and Grab-taxi, was probably beginning to bite even though the CD management seemed to brush it off initially. Taxi operation in Singapore is the most lucrative business for Comfort-Delgro, and if Comfort-Delgro were to lose its market-share, its bottom line is likely get hit. That probably explained why Comfort Delgro share price hardly crossed $3.00 per share in the last two months.

Given the additional threat, even the share price of companies that provide essential services can still come under pressure, albeit a bit slower compare to high-growth stocks. That said, Comfort-Delgro is still a great company in view of its deep pockets and the management’s ability to generate multiple sources of income. When the time is right, and of course when the price is right, perhaps, it is time to take comfort again. I will not catch a falling knife for the moment.

Disclaimer:

  1. This article is not a recommendation or an advice to buy/sell the mentioned stocks. It is just a pure sharing with the readers of this blog.
  2. Note that the share price of the mentioned stock could change abruptly upwards or downwards especially with the asset-light arrangements with the transport authority. The author does not have any privy information of the company or its related matters other than those released by the company publicly.

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.

 

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.)