Comfort Delgro

[YMPL]

I refer to this ST article dated 5 Sept 2017
http://www.straitstimes.com/singapore/tr...1504616898

The article said "the market is simply not big enough to support a taxi/private-hire fleet size of more than 70,000 - up from 28,000 cabs before Uber and Grab entered the fray in 2013". The author also did some workings based on assumption and worked out to 4.6 trips per day per private-hire car for the current over supply situation. However, it takes seven to 10 trips (average 10km/trip) to cover daily rental and fuel.

There is not enough passengers to go around. Eventually some drivers will quit and look for other income. I wonder if the private hire or taxi fare will come down to attract more passengers. Anyway, the industry will eventually find equilibrium, hopefully it does not take too long.

I dont quite understand the calculation in arriving at 4.6 trips per day, but I am very sure this number is not correct. I am a Uber driver for more than 2 years already. While it is true that more drivers are competing for passengers, but I can still comfortably get, on average, 5 trips in the morning from 7.30am to 10am. However, the average fare/trip has gone down over times, a sign that supply is increasing faster than demand. Also, it is a fact that Uber is losing competiton to Grab, and the gap between them seems to be widening. So, I believe CDG and Uber will try to make the marriage works, to fight the competition.

I read the article. IMO, the flaw is on the assumption of a re-distribution of demand. Disruptive means breaking the current norms, thus we need to stay open on new norms and new demands.

IMO, there is no over-supply. More un-met demand still available. LTA imposed peak time and minimum mileage for taxi years ago, taxi availability has gone up with higher utilisation rate. It indicated more demands met. While the taxi idling rate went up, but private hired car population went up many times more over the same period. IMO, it is to meet the real demand, rather than a illusion of growth. 

https://www.lta.gov.sg/apps/news/page.as...17d4fb43bb

http://www.straitstimes.com/singapore/tr...-by-a-mile 

The situation is there is a shift of supply from taxies to private-hired cars. Is there an over-supply? I reckon, there is still un-met demand, based on the incentives to take more call, offered by all market players. The idling taxies, is just the outcome of competition, rather than market trend.

Is the current model sustainable? Definitely not. Business model wouldn't sustain without profit. Market players are trying various models, and new technologies are emerging. I am optimistic to see a success with probably two or more dominant players in near future.

[Stocker]

I refer to this ST article dated 5 Sept 2017
http://www.straitstimes.com/singapore/tr...1504616898

The article said "the market is simply not big enough to support a taxi/private-hire fleet size of more than 70,000 - up from 28,000 cabs before Uber and Grab entered the fray in 2013". The author also did some workings based on assumption and worked out to 4.6 trips per day per private-hire car for the current over supply situation. However, it takes seven to 10 trips (average 10km/trip) to cover daily rental and fuel.

There is not enough passengers to go around. Eventually some drivers will quit and look for other income. I wonder if the private hire or taxi fare will come down to attract more passengers. Anyway, the industry will eventually find equilibrium, hopefully it does not take too long.

I dont quite understand the calculation in arriving at 4.6 trips per day, but I am very sure this number is not correct. I am a Uber driver for more than 2 years already. While it is true that more drivers are competing for passengers, but I can still comfortably get, on average, 5 trips in the morning from 7.30am to 10am. However, the average fare/trip has gone down over times, a sign that supply is increasing faster than demand. Also, it is a fact that Uber is losing competiton to Grab, and the gap between them seems to be widening. So, I believe CDG and Uber will try to make the marriage works, to fight the competition.

Ben , My brother is driving UBER also , he confirmed your statement .

[Porkbelly]

Then there are others who dont need the income from driving.

They use the vehicle to pass the time. Fares just help
to offset the rental and fuel costs.

This situation also happened with the yellow top taxis.
Home paid up, kids married. 2 old folks sitting at home
doing nothing.

Having a vehicle with air-con is luxury.
You get to move around in a climate controlled bubble.
With the occassional fare to converse with.
( at your own choosing )

No other job offers such freedom of movement with
just a basic skill of driving. Self employed with hazy KPI.
Does not apply to people who need regular income to pay bills.

[piggo]

Then there are others who dont need the income from driving.

They use the vehicle to pass the time. Fares just help
to offset the rental and fuel costs.

This situation also happened with the yellow top taxis.
Home paid up, kids married. 2 old folks sitting at home
doing nothing.

Having a vehicle with air-con is luxury.
You get to move around in a climate controlled bubble.
With the occassional fare to converse with.
( at your own choosing )

No other job offers such freedom of movement with
just a basic skill of driving. Self employed with hazy KPI.
Does not apply to people who need regular income to pay bills.

That's romanticising the trade. Once you start, it will only take an asshole or two to destroy that illusion

[weijian]

I read the article. IMO, the flaw is on the assumption of a re-distribution of demand. Disruptive means breaking the current norms, thus we need to stay open on new norms and new demands.

IMO, there is no over-supply. More un-met demand still available. LTA imposed peak time and minimum mileage for taxi years ago, taxi availability has gone up with higher utilisation rate. It indicated more demands met. While the taxi idling rate went up, but private hired car population went up many times more over the same period. IMO, it is to meet the real demand, rather than a illusion of growth. 

https://www.lta.gov.sg/apps/news/page.as...17d4fb43bb

http://www.straitstimes.com/singapore/tr...-by-a-mile 

The situation is there is a shift of supply from taxies to private-hired cars. Is there an over-supply? I reckon, there is still un-met demand, based on the incentives to take more call, offered by all market players. The idling taxies, is just the outcome of competition, rather than market trend.

Is the current model sustainable? Definitely not. Business model wouldn't sustain without profit. Market players are trying various models, and new technologies are emerging. I am optimistic to see a success with probably two or more dominant players in near future.

While i am not sure whether there is an oversupply situation or not (Actually, how would you draw the line between "oversupply" vs "sufficiently supplied"?), but i do agree that new demand is been created because it is disruptive. I didn't used to take cabs but sometimes i do (take Uber) now. New demand has been created because the product/service has been materially improved and sizing the existing market based on current incumbent's, can totally miss the shot. For vehicle sharing apps, besides the pricing, features like the payment (Why did they make us pay a surcharge for paying cab fares with Nets/CCs for the longest time), the convenience (call for one at any place with a data-connected smartphone) and the assurance (GPS tracks where is the driver) are examples where the disruptor has up the game level and it deserves a bigger crowd.


There are some memorable quotes coming from Bill Gurley's article in response to an academic's valuation of Uber (Bill is a Series A investor in Uber):

“In 1980, McKinsey & Company was commissioned by AT&T (whose Bell Labs had invented cellular telephony) to forecast cell phone penetration in the U.S. by 2000. The consultant’s prediction, 900,000 subscribers, was less than 1% of the actual figure, 109 Million. Based on this legendary mistake, AT&T decided there was not much future to these toys. A decade later, to rejoin the cellular market, AT&T had to acquire McCaw Cellular for $12.6 Billion. By 2011, the number of subscribers worldwide had surpassed 5 Billion and cellular communication had become an unprecedented technological revolution.” 

"Sizing the market for a disruptor based on an incumbent's market is like sizing the car industry off how many horses there were in 1910"

http://abovethecrowd.com/2014/07/11/how-...rket-size/

[CY09]

Anyone now eyeing up Comfortdelgro since Mr. Market is now pricing the company at a value of 5 Billion?

In my opinion, Comfort was lucky when LTA decided to pump money by purchasing its assets to improve the public transport system. This was a time when Comfort and SMRT were putting little priority on maintenance CAPEX in order to preserve their bottom line (it might be worse now given SMRT and Comfort Taxi has to fight Uber/Grab).

Through a bottom line analysis, I am expecting Comfort's segment to earn the following profits on a full year basis (Public Transport Segment: 170mil, Taxi: 50 mil, Bus station: 12 mil, auto/inspection: 80 mil , the rest about 20 mil). With its cash flow generation ability following quite close to net profits, we can reasonably expect Comfort to make about 340 mil a year (before taxation and non-controlling interest); adjusting for these, Comfort shareholders should expect a net profit of about 230 mil a year. To me, at about 21.7x PE or P/FCF, I think Comfort has some distance to fall to be seen as a fairly valued entity (15x P/FCF). This puts the Group's fair value at about $1.45 (in the face of Grab/Uber's competition) or s$3.45 billion in market cap.

As a value investor, I will strive for a margin of safety and pricing it at $1.00-$1.10 (or 2.5 billion market capitalization); makes it a value buy. It is worth noting such calculations will not hold water once Uber/Grab stops their money burning/gravy train/whatever name you call logic defying antics.

It serves to show how much Comfort's taxi segment (especially the Singapore fleet) had been contributing to the bottom line of the group (used to be 150mil and reducing to 50 mil weakens the group's net profit and cash flow ability tremendously)

What are your opinions of Mr Market's valuation of the group now?

[opmi]

Err...buy the simplest part - SG bus/rail??? No need to burn money in future.

[CY09]

Which is probably why SBS transit is being sold at sky high P/E of 25 times vis-a vis its parent company who is experiencing declining profitability

[TTTI]

Anyone now eyeing up Comfortdelgro since Mr. Market is now pricing the company at a value of 5 Billion?

In my opinion, Comfort was lucky when LTA decided to pump money by purchasing its assets to improve the public transport system. This was a time when Comfort and SMRT were putting little priority on maintenance CAPEX in order to preserve their bottom line (it might be worse now given SMRT and Comfort Taxi has to fight Uber/Grab).

Through a bottom line analysis, I am expecting Comfort's segment to earn the following profits on a full year basis (Public Transport Segment: 170mil, Taxi: 50 mil, Bus station: 12 mil, auto/inspection: 80 mil , the rest about 20 mil). With its cash flow generation ability following quite close to net profits, we can reasonably expect Comfort to make about 340 mil a year (before taxation and non-controlling interest); adjusting for these, Comfort shareholders should expect a net profit of about 230 mil a year. To me, at about 21.7x PE or P/FCF, I think Comfort has some distance to fall to be seen as a fairly valued entity (15x P/FCF). This puts the Group's fair value at about $1.45 (in the face of Grab/Uber's competition) or s$3.45 billion in market cap.

As a value investor, I will strive for a margin of safety and pricing it at $1.00-$1.10 (or 2.5 billion market capitalization); makes it a value buy. It is worth noting such calculations will not hold water once Uber/Grab stops their money burning/gravy train/whatever name you call  logic defying antics.

It serves to show how much Comfort's taxi segment (especially the Singapore fleet) had been contributing to the bottom line of the group (used to be 150mil and reducing to 50 mil weakens the group's net profit and cash flow ability tremendously)

What are your opinions of Mr Market's valuation of the group now?

Strangely, I personally used a forward PE of 16+ and it's not far from your targeted fair value too.

Also, I don't think Comfort can rely on the competition (Uber and Grab) going away after they have burnt through their money.
It's a different ball game from what the traditional value investors are used to
The metrics they are focusing on is not about profitability or cashflow
They are 100% focused on market share
Cos Grab/Uber is not merely about taxis or private hire vehicles.
Their long term plan after gettting the lion's share of the market is to utilize their network for auxillary services
Think about the integration of transportation with practically everything else
A private hire car picks up a tourist from the airport, sends him to a prearrange hotel which Grab has ties with, and throughout the entire stay, private hire cars bring the tourist to various destinations. Dinner at prearranged restaurants. All part of a package.
So the key for them is their network effect. 
Right now, profitability and cashflow doesn't matter.
That's why investors are still willing to plonk in millions after millions in every round of financing, even without a cent of profitability to show for.
Because if they are successful, the end result and opportunities are limitless.
Kinda similar to Facebook's model when it was still growing.

The other way to value Comfort is to completely write off their taxi business, but assume some growth in their other segments. That'd be very aggressive, but it'd incorporate a certain MOS in itself. (Quite hard to see them completely selling off their taxi segment for nothing)

Either way, I can't see how Comfort won't continue to feel pressure from the disruptors in the near to mid term.

[Ray168]

Anyone now eyeing up Comfortdelgro since Mr. Market is now pricing the company at a value of 5 Billion?

In my opinion, Comfort was lucky when LTA decided to pump money by purchasing its assets to improve the public transport system. This was a time when Comfort and SMRT were putting little priority on maintenance CAPEX in order to preserve their bottom line (it might be worse now given SMRT and Comfort Taxi has to fight Uber/Grab).

Through a bottom line analysis, I am expecting Comfort's segment to earn the following profits on a full year basis (Public Transport Segment: 170mil, Taxi: 50 mil, Bus station: 12 mil, auto/inspection: 80 mil , the rest about 20 mil). With its cash flow generation ability following quite close to net profits, we can reasonably expect Comfort to make about 340 mil a year (before taxation and non-controlling interest); adjusting for these, Comfort shareholders should expect a net profit of about 230 mil a year. To me, at about 21.7x PE or P/FCF, I think Comfort has some distance to fall to be seen as a fairly valued entity (15x P/FCF). This puts the Group's fair value at about $1.45 (in the face of Grab/Uber's competition) or s$3.45 billion in market cap.

As a value investor, I will strive for a margin of safety and pricing it at $1.00-$1.10 (or 2.5 billion market capitalization); makes it a value buy. It is worth noting such calculations will not hold water once Uber/Grab stops their money burning/gravy train/whatever name you call  logic defying antics.

It serves to show how much Comfort's taxi segment (especially the Singapore fleet) had been contributing to the bottom line of the group (used to be 150mil and reducing to 50 mil weakens the group's net profit and cash flow ability tremendously)

What are your opinions of Mr Market's valuation of the group now?

I am quite puzzle with your estimate that Taxi profit of 50 mil for FY17, as compare to FY16 profit of 167 mil. 
This is ~70% of profit down. 

Would you please elaborate your estimate.