Saturday, September 16, 2017

Comfortdelgro Hits 3-Year Low

Comfortdelgro hits not only a new 52 weeks low last Friday but also a 3 year low. The last time they hit around this share price was around in Jun 2014. That was right before the contracting model announcement takes place for the public transport.

I just did a quick comparison to see how they fare in terms of earnings between the two.

It seems on a glance earnings was pretty much on par. While operating profit came in slightly lower in 2017, finance costs came in much better due to the lower borrowings they have (stronger balance sheet), hence overall profit was higher. If we just annualized the FY2017 earnings based on the half yearly, we'd get about $320m for the full year. That's a big IF earnings had bottom already.




If we break it down by division, we actually don't see a lot of difference with what they are 3 years ago. Public transport is evidently higher with bus and rail leading while margins are marginally higher. The taxi division is actually rather flat, with margins coming in at around 11.7%.

Based on the fleet size published from the LTA, it appears that 2017 has dropped to as low as 2011 and not 2014. So there are something to reconcile here. Perhaps it could be that utilization is higher or the revenue they charged is now higher. Given that margins are rather similar, it appears the latter is more unlikely.





On Friday after market, LTA announces that SMRT had won the tender bid for the Thomson East Coast line with $1.7b over 9 years. That's 30% lower than what SBS Transit has come up with their proposal. Given that margins are only hovering slightly less than 10%, I'm quite skeptical on how they can come up with the 30% lower tender bids. If we are an outsider, we'd never be able to come to rationale the major difference. Of course, one thing good about SMRT is they no longer had to account publicly on their financial statement. We also know who their major shareholders are.

The news will be huge for the media and analyst to over-exaggerate on the failure for SBS Transit for failing to get them. I actually think earnings wise this will not impact much in the short term. It's a massive project filled with potential cost overrun. That's why the government is taking the revenue risk for the first 9 years. A friend who worked in SMRT once told us that it's not easy to make money on the rail. There's a lot of surprises that will hinder the forecast.

Meanwhile, the slide will continue and probably compounded with even more bad news for CDG.


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29 comments:

  1. Hi B,

    Another opportunity to buy more of CDG :)

    ReplyDelete
    Replies
    1. Hi Sleepydevil

      Seems like maybe you'll get your wishes there :)

      Delete
    2. I believe there's still one more blow should the strategic alliance between Uber fall through

      Delete
  2. Hi B,

    Just asking, will you average down further, hold, or downsize your holding in cdg?

    ReplyDelete
    Replies
    1. Hi Anonymous

      Im likely to average it down when it gets to the price I want.

      Delete
    2. Hi B,

      Do you mind sharing the price that you want? Just wondering how would you value the taxi business? Would you calculate based on CDG matching Grab's rental of $50/$60 per day?

      Thanks for your advice.

      Delete
    3. Hi Jalan Jalan

      I'm watching the fleet utilization numbers for the Singapore aspect but also a look at their overseas trend for the bus and taxi. In my opinion, we'll should see it hovering around $2 for quite some time so I think the downside from valuation view is rather limited.

      Of course, many thinks otherwise and they are free to take a short position to back their words up instead of just saying :)

      Delete
  3. Given that the acceptance of Grab is just starting up, CDG taxi drivers have only started to experience tough times. It will take a while before CDG drivers to feel the pain of competing with Grab Drivers for revenue and yet paying 90+ rental/day to CDG. Given that Grab Drivers are paying less for their rentals or even none because they are using their own car, either CDG has to lower its rentals to the region of 70+/day or risk losing drivers.

    CDG taxi's segment will not make profits at 70+ range because of the high COE prices they bidded for their taxis in 2012-2016. The scenario CDG faces is similar to many present offshore companies where every O&G company tried to expand paying big bucks for O&G support vessels only to realize fleet utilization and rental rates have fallen

    ReplyDelete
    Replies
    1. Hi Choon Yuan

      Thanks for your views.

      Thats a big if CDG management doesnt do anything about it and status remains status quo. What if for some reason they started ganging up with uber to defeat a common enemy. We all know uber has the funds and cdg has the network too, so it might work in their favor to defeat a common enemy. What also if cdg sells their taxi division to uber? Theres a lot of forward scenario that can play out that we dont know at this point. Those management gets paid a lot money to tackle issues like this. If they let status remains status quo then they dont deserve this. At least i feel this is different from o&g companies which are much more dependent on external commodities factor that they arent able to control.

      Delete
    2. My advice to you is to sell now. You have reached your stop-loss. Enough already. Stop gambling.

      Delete
    3. Hi Russell

      Thanks for commenting. And am I supposed to listen and depend on you to earn money in the future? How about you publicly declaring your vested interest in this? I'll respect you if you have a short position vested interest in this.

      Delete
  4. This seems to be just the start. Grab has only just started its fight with CDG taxi recently. Grab definitely has more money to throw and burn compared to CDG

    ReplyDelete
    Replies
    1. Hi MIM

      There's another player in the mix which you seems to have excluded :)

      Delete
    2. Uber dosent seem to be able to break into the southeast asia as well as grab. I hope uber does not up the ante in an already competitive field. Even though it is working wit& comfort, if uber decides to give generous subsidy for rentals as well, more comfort cabbies will defect

      Delete
    3. I don't think Uber is as strong as grab in terms of getting funds for now unless they resolve their management issue.

      No idea whether the uber & cdg partnership would pay off.

      Delete
  5. CDG TTM dividend is 10.5cents. Do you think this can be sustained over the next few years ?

    ReplyDelete
    Replies
    1. Hi Betta man

      Based on my calculation yes. They are spending less on capex and they payout higher than they did in the past so my computation shows they would be able to maintain the 10.5 cents dividend despite the lower earnings. I'll revisit of this thesis is broken.

      Delete
    2. With comfort going under 2 today, at around which price point would u buy more to average down?

      Delete
    3. Hi Anonymous

      I had my quota this month by averaging down at $2 just a few days ago.

      My next one is $1.90, hopefully not so fast as my quota this month is over.

      Delete
    4. Hi B, why don't u wait for their Q3 results or the Uber alliance first before averaging down? Why are u so confident in this counter?

      Thanks for the advice.

      Delete
  6. I just read this piece of News. This sector is a slaughter right now.

    https://www.theedgesingapore.com/comfortdelgro-hits-speed-bumps?utm_source=Singapore+Market+Report&utm_campaign=dd40f6f6ae-EMAIL_CAMPAIGN_2017_09_18&utm_medium=email&utm_term=0_46b7beec93-dd40f6f6ae-90572253

    ReplyDelete
  7. Hi B,

    Looks like there's some intense discussions here. Thanks for the analysis comparing to 2014. Basing on this, it seems like the stock price is oversold. Hope the taxi segment will stablise soon but looks like will continue to decline looking at the fleet numbers. If comfort joins uber, that would help a lot because uber drivers are still getting lots of customers when i took one last week.

    ReplyDelete
  8. Hi B,

    What factors would make you change your assessment of CDG?

    ReplyDelete
  9. Hi B,

    I think CDG will be a final winner ,UBER and Grab business model not sustainable ,they cannot offer subsidize to their customer and driver forever.

    ReplyDelete
  10. Short value increased to SGD 8million on 20 sep... No letting up!

    ReplyDelete
  11. The rationales are:
    "some business is better than no business"
    provide them with a skeleton proposal, then break with with shark teeth by having "add-ons" contract. If you want me to give you extra, this is the cost, blah blah, it might not 30% as it seems.

    These tac-tics can break or boost a business.

    ReplyDelete
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