Friday, December 8, 2017

CDG-Uber tie-up

It is confusing.

I cannot quite understand CDG JV with Uber. In the surface of it, it make sense, CDG has a app that works better and consumer can call for both cab or non-cab, and decide if they want surge charging with PHv or just plain peak surcharge. If that is the sole reason, they should just work with Grab and let the CDG drivers use their app. Definitely cheaper than buying Lioñ Rental 

But given CDG Pay so much for Lioñ rental, it would means CDG believe the future taxi business is one of PHV and perhaps some flag down opportunities for thos who dun use app. ( maybe tourists? )

It then can laterally transfer drivers, or for taxi drivers who wanted to become PHV drivers, to stay within the family. But this is a reduce bleeding strategy, not a growth strategy.

So how lucrative is the business ??

The aggregate cash consideration for the above acquisition is estimated at S$295 million and arrived at based on the net asset value of approximately S$642 million based on the value of about 12,450 vehicles. “

Each vechicle is worth about 45K. In the news media, it is said that Lioñ City Rental has a fleet of about 14k.  I think CDG has a good deal in the sense it assume about 90% of the fleet can be rented out at any time. 

45k can only pay for COE in recent years but we all know vechicles are depreciating assets. 

The rental rate of vechicle for Uber drivers is up to $58. If u renting for private consumption, it cause a bit higher. Let’s assume a rate of $50 for simplicity sake. 
A attrage is for rent at $47. 

Assume the car is rented out for 360 days in a year. 1 year of revenue is 18K. Assume CDG can achieve economic of scale and manage the fleet at low cost and achieve margin of  about 50%. It needs 5 years to break even. I think most cars will have a COE or at least 7-8 years since Lioñ Rental City is only started by Uber in 2015. 

Yield accretive but nothing to shout at. 

However, it does give it a immediate sizeble Market share of the PHV. From what I read, it’s range from 40k vechicles to 60K. At least 25% market share with a blink of an eye. 

Uber also has various incentive for drivers who clock a certain no. Of rides so I would think my calculation above is liberal and the margin lower. But Uber dun seem to be as aggressive in giving out promo code. 

It’s a good counter move by CDG strategically but if anyone wants to see fireworks in terms of earning, think they will be disappointed. 

14 comments:

  1. Market are played by BBs. Are BBs buying or selling?

    ReplyDelete
    Replies
    1. For small players like us. Better to move ahead of BB

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    2. BB can change their mind very quickly

      Delete
  2. Sillyinvestor,

    Next Monday and ownwards, we'll know.

    Market will vote what they think of the deal ;)

    ReplyDelete
    Replies
    1. Hi SMOL,

      I think Anon says it. But with the confirmation of the deal, the market will vote like a real election instead of a phone poll.

      Personally I think it’s not a great deal, but a move in the right direction in the longer run. Because I think it will continue to fall more first

      Delete
  3. Actually the market has voted. Somehow the news got leaked out, and the market reacted by correcting the past 2 days, prior to the release of the news.

    ReplyDelete
    Replies
    1. Hi Anon, When it’s in the open, the voting will be more accurate.

      Not sure how it will vote. I have no skin in the game yet. So only a by stander and watcher

      Delete
  4. Hi Sillyinvestor,

    I'm glad that CDG at the very least took an approach to deal with the problem arising in their taxi business.

    With very little numbers out here, it's extremely difficult to determine anything. I'm having a fair bit of mixed feelings when they announced on the strategic alliance. Uber app platform will "allow more CDG drivers" to receive bookings. Tho this might looks like a measure to protect their drivers from leaving.

    One major aspect many should remember is that majority of the users using Grab/Uber is due to the cheaper prices and convenience it provides.

    Taking a bite into LCR will creates another stream of revenue for CDG and this action will provides them with a share in the private hirer market. The other stream of income will only come true only IF the fleet of vehicles in LCR are rented out. Else, it would be the same as it is in CDG now.

    Perhaps, they're hoping that the additional stream is going to help them improve their revenue in the coming years. But now, they're also subjected to rules should the government do something to PHV.

    ReplyDelete
    Replies
    1. Hi sleepydevil,

      Actually, there is no stopping of CDG drivers to moonlight on Grab or Uber platform. I saw it before.

      At least they are doing something. Lol.
      There have more tie up to come.
      I suspect it’s not restricted to Singapore

      Delete
  5. Market gives it thumb up.

    Now if itt will continue.

    I got it wrong again LOL.

    Thought it will fall

    ReplyDelete
    Replies
    1. Here goes another chance to nibble at a lower price :(

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    2. You power! Mr Market thought over and gave you thumb up

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    3. Ha ha! cW

      When I have no skin in the game, I am more often right than wrong, when I am in the game. I am more often wrong than right ...

      Delete
  6. Uber breach in data security and perhaps illegal cover up in the breach will most prob cause more selling in comfort

    ReplyDelete