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