Friday, August 11, 2017

Comfortdelgro - Q2 FY17 Results & Thoughts

I was quite anticipating the results from Comfortdelgro and even more so after reading the results in the previous week by Vicom and SBS where both increased their payout to issue higher dividends to shareholders.

I mentioned previously that I thought there was a good decent chance that Comfortdelgro might maintain their dividend as last year despite the poorer taxi division due to the better cashflow that they have. This remains something which I am taking a close look still.

In terms of earnings for the Q2, revenue was down 3% while nopat was down 9% year on year.

Revenue for the taxi division was down by more than 10% due to the lower leasing fleet and higher competition. You can see that in the overhead driver's benefits also quickly went down so margins are steady but it was still a very strong decline.

The public transport did much to mitigate the situation otherwise it could have been worse.

In terms of geographical, the UK segment was the part intriguing to me. Not sure if their bus division there are facing some pressures.

Despite the lower earnings, operating cash flow was higher due to the lower grant, as well as higher free cash flow due to the lower capex. The free cash flow yield I computed is at 17 cents or 7.3% based on current share price. They would be well able to pay the current payout they are paying to shareholders in term of dividend.

Other than that, there are not much new development that we will know about the taxi business and how the management would tackle the current situation.

I think overall there would probably a point where the drop in taxi would reach saturated point, and the disruptors would face more pressures in terms of less incentives so that would be a time where competition is really head to head. I mean think about this, if there are a disruptor in airline and they keep giving huge incentives for you to take their flights you probably do that too. The question remains when will that last. Their technology and light asset model are obviously a huge advantage too.

I'm still skeptical as well about the margins on the new downtownline later this year as well as the public fare reduction. Sentiments should continue to remain poor.

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  1. Will you divest or accumulate more?

    1. Hi Anonymous

      So far the decision for me is to hold on to the current shares I have. I don't have plans yet to divest or accumulate more at this juncture.

  2. I have been following your blog, and from the tone of this post it seems that your view in CDG did not change. *Not sure if i am trying to read too much*

    Given that fundamental did not change, would you consider accumulate more?

    Is there a stop loss point or trigger event, e.g. driverless cars approved in SG, such that you will exit CDG?

    1. Hi Dal

      Yes so far the thesis still looks valid to me so I am still watching the numbers develop from the taxi business side and I am also watching how the company would allocate the higher cashflow back into their business.

      If things (new development) get worse, and it might as well be, then I might consider taking off positions in the company by then.

  3. I'm actually quite impressed with the company's ability to maintain margins in this challenging environment.
    CDG has been, financially, very disciplined; shown by their prudent cost management.

    With so much competitive pressure in SG taxi market, I think it's really up to the management to continue looking overseas to grow their revenue. Their past M&A ventures overseas had been quite successful so far. I believe market seems to have wrtten that off.

    Upside is probably limited in the near term and like you have mentioned, margins of DTL is a black box. Could go either way.

    Vested and will continue to accumulate on further price weakness.
    Meanwhile, it definitely gives me a peace of mind to know that dividends (paid within FCF) are sustainable.


    1. Hi WK

      I'm with you on this on the thoughts of the company.

      I'm also watching how they are able to mitigate the weakness by venturing overseas with their conglomerate presence and past successes so that is key to me on how they will move from here. Else, it's normal 4-5% dividend yield while waiting for that to materialize for me. Could be a long wait though.

  4. Once a taxi driver told me not to worry abt competition given CDG strong history in SG...

    We shall wait & see..

    1. Hi Anonymous

      One person view from the driver should be taken a pinch of salt :D

  5. Hi Mr.Halim,

    I sent you an email a couple of times, just wondering whether you have seen them at all?
    I saw your article on Straits Times and was really inspired by your story so I asked you whether I could have the opportunity to meet you in person and ask you for advice regarding achieving financial freedom.
    Since you have been out of Singapore so I guess you could have missed my email.

    Would you be able to let me know if this would be possible?

    Thank you.

    1. Hi Nicole

      Many thanks for your kind words.

      Unfortunately, I am not a professional consultant hence I do not meet up with people to provide advice to people regarding finances and investing. I'd be happy to help if I can if you have particular question you want to ask in the email.