Thursday, September 21, 2017

Discussion on comfort delgro

This post is kind of triggered by B's blog post. There is an robust discussion over there. Some of the ideas throw out also appear in valuebuddies. 

I would just like to share my view on some of the thoughts and comments. I am only interested in the forward looking comments, that's where the fun comes in; as for past numbers, there can be little arguments.

Here goes: (B, no disrespect, come join and poke me too)

1) Grab business model is unsustainable. 

MHO:Yes, it is burning cash. But it can burn cash long enough to create a lot of pain to Comfort-Delgro.

Alibaba, burn cash for a long period of time. But Japan SoftBank dump billions and billions. Amazon laughed at it, since they don't collect fees for its platform and hence its "burning cash". We all know how the battle at China goes. 

Alibaba's Gem is alipay. Although it has now reach such scale that the platform by itself is profitable. When I read Amazon Annual reports, its profits is volatile. I can't the name of mother company of Lazanda (use to), food panda, Zalora. Those platforms are hardly profitable, their business plan is to gain scale to list as a IPO or sell the company (like lazada to Alibaba) it has a venture capitalist business model.

I know u will think that these e-commerce platforms are not actual comparables. I agree. My point is: we might be sure what game plan Uber,Grab has.

2) Comfort delgro business will survive.

IMO: I have no doubts about it. In fact, I think it might not even incur a loss. But I am not sure everyone investment in Confort Delgro will "survive" 

3) Comfort delgro alliance with Uber is a potential catalyst.

IMO: I agree too. However, my thoughts is this. It is just a case of lesser evil. There are several ways the alliance can work. The most logical partnership is uber tap on hardware and comfort tab on software.

Comfort delgro will win, because the idle fleet will reduce. Uber will gain, it will not need a big capital to buy vechicles. But will Confort delgro be able to rent out at attractive rates to Uber? I do think Comfort delgro is in a position of weakness. Remember, Confort used to charge cabbies $140 for newer vehicles. That is 10 years ago when I don't drive and I like to chat with cabbies. The norm is $130 and the better ones up to $140. Now, no one talks about $120 rental. 

Can Comfort bulk rent to Uber at good rates? Hardly. But it is defintely better have them idling, since vehicles  are depreciating assets of 7-8 years. 

And I  have not go into the handicap of comfort. I felt they are really shortchanged in this competition. They are like going into the boxing ring with both legs and hands chained. If I drive Uber, I can renew a 10 years old car for 10 years coe. If cabbies' info to me is accurate, taxis are up for scrap in 7 years. Max renewability is 9 years.

If I already have a car, I dun even have to rent and I can drive for Uber. Also, as mention in previous post, taxi is a full time job. Once u hire the car, u need to pay everyday. Drivers might not like this kind of rigid arrangement. I know a few friends who toogle between Grab and Uber to earn extra bucks depending on which have better incentive, during a particular period. 

If they are busy, or have a sub-contractor job or free-lance work, they just need to do nothing. Don't rent the car and no rent is required. So the competition is not on rates alone, if u know, u can say "quality of worklife"

4)  Regulation tightening is another catalyst 

Not a lot of people talk about this. As I have said, the competition is really unfair. Now all drivers need vocational liscenses. I believe Comfort Delgro will try its best to evolve its business plan as its tried to arm twist the regulators. 

For one, I believe Delgro is already making more fleasible rental arrangement. As for rates, it will also move towards more equilibrium, I will not bet it will happen anytime soon due to point no.1 

For various safety reasons, the cost of private hire could increase if the regulators start to set the conditions where cars can be used to private hire. The supply of drivers has actually increased tremendously (as a forummer in valuebuddies mention) because it has made freelance taxi-Ing sexy. Confort might be able to capture this "enlarged pie" when equilibrium happen, especially if they can come up with really flexible plans, and regulation start to clamp down on the "anyone also goes" 

5) Uber and Grab show their trump card earlier

IMO: Grab/ Uber is not a taxi company and neither is it interested in becoming one. I am not sure what it's game plan? IPO? Venture capitalist? Logistics ? 

When their trump card is out in the open. Delgro will fight a easier war

Conclusion:

Am I vested: No

Am I tempted: Yes 


14 comments:

  1. It is not just about idle taxi with no rental income. Idle taxi incurs parking fee when their own parking space runs out of space. Scary! Vicom may also take some smaller hit when more taxi are idling. Right?

    ReplyDelete
  2. Lol. I think parking cost is the least thing in the mind of management. Because u solve idle fleet, u solve everything.

    As for vicom, there business is more correlated to car population in Singapore which is tightly regulated. I dun think there is a problem there. COe might go up or Dow Corning but j hardly think car population will shrink. Think about it Coe at $10k. Because supply a lot, u won't buy meh? I would.

    More old cars not necessary bad for vicom

    ReplyDelete

  3. Am I vested: No

    Am I tempted: Yes

    Yes,

    i am also looking closely at CDG. For CDG i will use P/E, Dividend yield and Price to cash flow to try to value the company.

    I try to value EPS for taxi as $0 and work backwards on how much the other business is worth. For me the triggering price to enter is around $1.80

    ReplyDelete
    Replies
    1. hi solace!

      Welcome back. Where have u been? Hardly see u even at AK place.

      I think past no. Might.not have been that useful as Cdg is driven by sentiments. But since we do not think taxi business might not be loss making, valuing it at zero is conservative. Many value sembcorp but valuing marine at zero. But when it goes loss making it went super free fall.

      As far as I can see, the earnings weakness he not show yet. So I guess the
      Blood is not out yet

      Delete
  4. Assuming 100k taxi at 7 years life, it means 40 per day of depreciation. Which means comfort could be negative profit if they cut rental to Uber levels. Plus they don't have fees from calls. Note that EPS 0 is not a lower bound.
    Uber knows comfort is desperate to negotiate. Uber doesn't need comfort .any deal will be negative, just what extent is priced in

    ReplyDelete
    Replies
    1. Hi Anon,

      Just saw in news Uber lost its taxi license in London. Maybe CDG will be in better bargain position now??

      I think the deal will be positive but not structural changing. But no deal will be bad. Look at M1 LOL

      Delete
  5. Hi SI

    Thanks good discussion and thoughts.

    I have no doubts that grab and uber can burn for longer than we think. Perhaps their IPO would be the catalyst for cdg? Haha just kidding.

    Its a huge structural decline for the traditional taxi business, but I think they've been sufficiently punished from the share price (losing 1/3 market cap from the peak of $3.2). Will they lose another 1/3? This is where I think it will not happen. I think Comfort is still able to provide value out there in terms of their network and their fleet and overseas expansion. Theis goal is obviously a little different from grab and uber which has different objective of building up the network and being asset light.

    Am I vested? Yes
    Am I interested? Yes too

    I like companies in troubles generally haha.

    ReplyDelete
    Replies
    1. Hi B,

      Guess turnaround plays is one of your forte.

      I do that too, until I get "burn" be sembcorp industries and to some extent "lee metals and LMIr"

      But it can be lucrative too. I still banging my head on the hall for venture

      Delete
    2. Price is getting lower. Thinking to average down some more.
      But I make my mistake on semb Corp too.

      Delete
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