Comfort Delgro

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(03-04-2023, 10:48 AM)weijian Wrote:
(28-03-2023, 09:44 PM)Choon Wrote: Looking at CDG recently as its share price has fallen a lot.

The Group has a net cash position of S$653M as at Dec2022 which is significant relative to its market cap of S$2.5B. Deducting this net cash off market cap may yield a very reasonable PE ratio.

Question I have is - is this net cash really free for use (either distribution or for acquisitions)? 

My doubts are:
(i) impression-wise, CDG is an asset-heaving company. 
(ii) and it has a large current trade and other payables of S$832M. 

So am rather surprise that it has a large cash and net cash balance.

Appreciate thoughts and insights.

Hi Choon,

Looking at PE after deducting net cash is like looking at EV (enterprise value) and valuing a company based on EV/EBITDA multiples, which is a substitute for P/E. The former is frequently used by takeover specialists because once they take over successfully, they have control on the capital structure. It is obvious that OPMIs are not the former.

While the OPMI should often put on the same lenses as a takeover specialist when looking at companies, I do not think it is applicable for CDG who has a long labor history.

Back to CDG. There are a couple of red flags for me personally:

(1) The way "extra" support is been given to the taxi drivers (due to its labor roots?) during covid-19 and even now. We could argue that the taxi drivers are their customers since they earn from taxi rentals. But substituting your customer isn't a very profitable endeavor. Ironically, CDG's fortunes over the last 10 years, were nailed to the cross by new (shared) economy competitors who substituted their own customers.

(2) CDG's own subsidiary VICOM had revealed that any international expansion would be done at the parent level. This should encourage any OPMI to instead look at their subsidiaries who will be paying up their cash to their parent to do the international expansion.

(3) Some of CDG's international expansion are going towards asset light (eg. the management contracts of railways) but her biggest investments are all CAPEX intensive (buying the transport tools and leases). I think the greatest risk is that CDG is operating in a core sensitive sector, ie. transportation, especially for the masses. In the age of populism and now "non transient" inflation, the risks are really high for a foreign operator in those countries.

"Looking at PE after deducting net cash is like looking at EV (enterprise value) and valuing a company based on EV/EBITDA multiples, which is a substitute for P/E. The former is frequently used by takeover specialists because once they take over successfully, they have control on the capital structure. It is obvious that OPMIs are not the former.


While the OPMI should often put on the same lenses as a takeover specialist when looking at companies, I do not think it is applicable for CDG who has a long labor history."

I see your point. To me, it is a bet. If the $600M is really free, CDG could do a significant acquisition funding it entirely from cash, and as a result, add perhaps $30-$50M to its bottomline. But I see that the cash is not held at the Company level but at the Group level, so I have choose to err on caution and regard that net cash as not free (held at operating companies for working capital needs).

Another point that caught my eye is  that CDG seems to be securing more and more overseas projects where it does not have to invest capital but just bid and operate. Thus as long as CDG does not overbid, the profits earned from these projects would just flow into its bottomline without CDG having to invest much (similar to Mandarin Oriental's asset-light hotel management biz).

It is a tough industry and I am still unconvinced about CDG.

But what if CDG's share price drop to $0.80 or $0.60 from the current $1.20?

And what if its profit recovers to pre-COVID 2019 high?
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(17-04-2023, 07:45 PM)Choon Wrote: Another point that caught my eye is  that CDG seems to be securing more and more overseas projects where it does not have to invest capital but just bid and operate. Thus as long as CDG does not overbid, the profits earned from these projects would just flow into its bottomline without CDG having to invest much (similar to Mandarin Oriental's asset-light hotel management biz).

It is a tough industry and I am still unconvinced about CDG.

But what if CDG's share price drop to $0.80 or $0.60 from the current $1.20?

And what if its profit recovers to pre-COVID 2019 high?

Hi Choon,

CDG is in the business of transportation and unfortunately, there are different modes of transportation - bus, taxi and train. All of them are very different and require different expertise. Hence I think there are more executional difficulties and hence it is not as scalable as Mandarin Oriental. For example, opening a new hotel means getting some experienced staff to temporarily move over, the same culture, using the same mgt systems, restocking the same bathing lotion and sharing the same promotional budget etc...

As to your hypothetical questions...it is obvious that there cannot be any purchase that is always bad irregardless of the price.
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A fare increase earlier in the month, followed by a commission increase a couple of weeks later. Money from left hand to right hand and then straight to CDG's pocket? Big Grin

CDG's share price seemed to have hit a bottom in mid 2023, and is rising with all the fare increases in taxi/public transport in the last quarter of 2023. Is the worst over?

ComfortDelGro to raise taxi commissions for booked rides to 7%

TRANSPORT operator ComfortDelGro will increase its commissions from cabbies to 7 per cent from 5 per cent from Jan 1, 2024. This will be applicable to app and phone-booked rides.

The 2 per cent increase in commissions would mean an additional S$0.40 on top of the S$1 paid to ComfortDelGro for a S$20 ride. A driver would have to pay S$28 to the company if he completes 20 such rides, S$8 more than what is payable now.

This would equate to an extra amount of around S$70,400 a day from ComfortDelGro’s fleet of about 8,800 taxis, or S$25.7 million more a year.

https://www.businesstimes.com.sg/compani...ed-rides-7
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Good, thoughtful post Weijian. I suggest receding interest rates should also help propel CdG’s share price. It currently has more than half a billion in debt. The competitive challenges arising from Uber, Grab should be well understood (and contained?) by now. I believe the challenge CdG’s management faces is boosting its ROA, ROE - currently sitting at a mediocre 3%, 6%.

Vested
RBM, Retired Botanic MatSalleh
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(31-12-2023, 02:50 PM)RBM Wrote: Good, thoughtful post Weijian. I suggest receding interest rates should also help propel CdG’s share price. It currently has more than half a billion in debt. The competitive challenges arising from Uber, Grab should be well understood (and contained?) by now. I believe the challenge CdG’s management faces is boosting its ROA, ROE - currently sitting at a mediocre 3%, 6%.

Vested

hi RBM,

I don't think there was an "thoughful-ness" in my earlier post. But I reckon you were generous with VB moderator. Smile

Receding interest rates may reduce its interest costs, and this will flow to the bottom-line - As a result, the P/L will be probably be better. I am not sure how CDG's share price turns out. For all we know, Mr Market may decide to assign a lower valuation (eg. lower P/E) and hence share price may actually not move.

P.S. From 1 old VB to another: a healthy reminder to focus on the asset/business/structure. Everything else is a byproduct. Smile
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It's in a net cash position so lower interest rates will also reduce interest income.
"Criticism is the fertilizer of learning." - Sir John Templeton
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