Friday, 22 September 2017

Accumulating ComfortDelGro

CDG has declined sharply last Friday to a new low of 2.09, dropping further when the market open on Monday and this continues to the price of 1.965 today.

LTA has announced on last Friday that SMRT has clinches the operating contract for Thomson-East Coast Line (TEL). The bid SMRT submitted was however 30% below it's rival SBS Transit, a subsidiary of ComfortDelGro.


Map of Thomson-East Coast Line (TEL)

The response is very negative from the market for this, shredding 11% of CDG since the last closing price on last Thursday

I've taken this opportunity days ago to cash in and accumulate 500 more shares of CDG at 1.99, which is 10% down from my previous average price at 2.22. CDG has became my greatest holdings so far. After averaging down, my new average price for CDG stands at 2.07/share. The last time CDG is trading at 1.96 (the price today) is back in March 2014, a 3.5 year low. Market capitalization from the drop has resulted in a decline of $475.81m.

There has been a big controversial in CDG recently, with different individuals voicing out different concerns about CDG's drop such as:

Falling fleet and 2000 Comfort's driver switching over to Grab for the heavily discounted rental.
A rental of $120/day x 2000 x 365 = $87.6m fall in revenue for the next year. 
This may continue to worsen should more driver of CDG switches over to Grab/other taxi provider.

Grab is currently very aggressive in the war with Comfort, I believe that the taxi fleet would continue to fall.

Towards which approach would CDG take to overcome this problem - selling their taxi business/scrapping their unused cars/price-war or offering incentives to retain their drivers. This shall be left to the highly-paid executives to make their decisions.

SMRT winning the tender to TEL.
This represents a "loss in possible revenue" to CDG's subsidiary, SBS Transit which will affect their earnings in the years to come when TEL opens.

On a positive note,

DTL3 will be opening in months time, and I believe that this will be able to slightly mitigate their pain in their revenue loss.

Healthy Balance Sheet - A good question will also be towards how Comfort is able to deploy their cash into generating more revenue for the group. With this destructive technologies, companies like SPH is also facing problem but has since diversified into other sectors such as properties. Will Comfort do the same thing? Again, This shall be left to the highly-paid executives to make their decisions.


With these in mind, the revenue losing businesses will translates to a falling EPS the next year. With the fallen share price, the price today at 1.96, it's priced at 13.25x their earning.

EPS now at 14.83c, assuming a 10% off it's revenue across all businesses in a terrible scenario, 13.347c of EPS will translates to 14.68x their earnings. To buy at the same 13.25x their earnings, 1.76 looks to be another price to enter.

Fortunately, my sizing are all extremely small. Should I catch a falling knife, it will be a good lesson for me.

There's still another blow to CDG should strategic alliance with uber fall through. I'll be reserving some bullets to accumulate more on the next blow, should it takes place and I will be looking towards to accumulating more shares of ComfortDelGro when opportunity presents :)

Fear, fear and more fear?
Read: A lookback into 1987 Black Monday


After the great correction of October 1987, the end of the world and the end of the banking system were widely predicted.
Peter Lynch



News on SMRT winning tender to operate TEL can be found here from CNA and here from Straits Time. TODAY report on ComfortDelGro's Taxi fleet here.

CDG's 2Q17 Report can be found here. 

2 comments:

  1. Hi,
    Either the Comfortdelgro lower down rental to match the Grab or sell away their taxi business will sustain their taxi operation. Frankly speaking, next month the whole DTL operates, the commuters will increase two to three times of the existing scale, so the increased revenue is expected to offset the loss in taxi rental revenue. Overall the comfortdelgro with lots of cash should be able to diversify well like the SPH but not for Uber and Grab if the latter run low in cash.

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    Replies
    1. Hi Meng Choon,

      Yes, I agree. There has been quite a bit of perssimism in the market towards CDG recently. However, I’m actually enjoying it. Hopefully CDG’s management and executives will be able to do something about it :)

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