Friday, 8 December 2017

CDG ties up with Uber!

8 December 2017 - ComfortDelGro Corporation Limited and Uber Technologies, Inc. today announced that they have entered into a strategic agreement to joint venture that brings together one of the world's largest land transportation companies with the world's leading ridesharing service to leverage their operational and technological excellence.

Under the agreement, CDG will acquire a 51% stake in Uber's wholly-owned car rental subsidiary, Lion City Holdings Pte Ltd which has a fleet about 14,000 vehicles for a cash consideration estimated at S$295 million (based on the NAV of S$642 million based on the value of 12,450 vehicles). LCR will be able to benefit from CDG's fleet management and operation while CDG taxi's driver will be able to receive ride requests on the Uber driver application, increasing their potential earnings.

This deal is CDG's single largest deal-to-date.

Currently, they are finalizing on the additional partnership opportunities and will make further announcements in the upcoming months.


CDG's price had been badly beaten down in the recent week, dropping to their new 52W low and closing at 1.91 today. Just moments ago, they've finally released the news on the strategic alliance - announcing that CDG and Uber has entered into a strategic agreement.

I've been in the queue today, queuing at 1.90, hoping to nibble a little bit more on CDG's share. Unfortunately, my queue is not filled.

I'm having some mixed feelings with regards to the announcement made. With the partnership confirmed, this will allow CDG's driver to tap onto Uber's network for more bookings. While this event does not directly creates more revenue for ComfortDelGro, it helps by protecting the existing taxi drivers' interest as well as preventing more drivers from leaving which will result in further decrease in revenue for their taxi business.

I'm a little surprised by the decision that CDG has acquired a big fraction of Uber's business in Singapore.

On paper, it look like a good deal having to acquire 51% stake of 12,450 relatively new vehicle. A simple calculation will bring me to the sum of 46k/car - based on (295m/51%/12450 vehicles).

Looking at the other side - the acquisition of LCR. LCR's fleet of vehicle is relatively new and I'm pretty interested to know on how many cars are exactly rented out. Without a number it's a little difficult to determine if this is a lucrative acquisition. Only when more numbers are revealed, the directions will be clearer.

Acquiring a 51% stake is pretty big here and a question will come if they will be able to recover their investment. Also, to remember that the rental price in LCR is cheaper and provides a lower margin. A big question also come by when CDG is having difficulty in managing their own fleet of vehicles and they're currently acquiring more vehicles.

Back to basics, as a consumer point-of-view, I believe most people that uses private hirer like Grab/Uber is using them because of the cheap prices and the ease of getting one. Having a price war is inevitable for companies like Grab/Uber who wants to steal a pie of CDG's plate. Hence, coming to the real issue here, it's the battle between prices. When lesser people is taking CDG's taxi, the drivers are earning lesser, and when the option of earning more comes (Uber/Grab), they will be jumping to another boat, which is why CDG is facing this problem now. However, if they were to reduce the rental fees, this will impact on their earnings negatively.
 
Before any much comments on how lucrative or not this acquisition is, I believe that as a shareholder, it is a good that the management is taking an approach to deal with a problem. I'll be looking to more updates from CDG to get a clearer picture of the situation.

Resources:
CDG's announcement can be found here.
CDG's Media release on strategic alliance can be found here.
Business Times news on CDG's alliance can be found here.

6 comments:

  1. I queued at 1.88 and it did not reach the price =)

    I read the news article too. And I am wondering whether the market will be reacting positively. I am wondering why they bought a stake in a rental coy.

    ReplyDelete
    Replies
    1. Hi MIM.

      Seems like Mr Market is giving us a chance here to watch and see. The market too is having mixed feelings about this news. For now, I'd strap my fingers to my pocket :)

      I too have the same feeling as to why CDG is acquiring another rental coy. But this action of CDG will allow them to have a share in the PHV market. Assuming most of the cars are rented out, the acquisition will turns out to create another stream of revenue for them. The big question will come IF they will be able to recover the investment :)

      Nonetheless, as a shareholder of CDG, I'm glad that they're at least taking an approach to deal with the declining taxi business.

      With regards to one sentence in the announcement - "Currently, they are finalizing on the additional partnership opportunities and will make further announcements in the upcoming months."

      It makes me wonder if they're going to buy down the entire Uber. Hahahaha

      Delete
  2. when u take an uber next time, ask the driver, how is LCR? =)

    ReplyDelete
    Replies
    1. Hi Foolish Chameleon,

      To be quite honest, when I'm in Singapore months ago, I do hear some complains around about LCR. I'm clueless on how the situation would have changed for these months - Tho I doub't there will be any BIG changes.

      Delete
  3. Hi,

    CDG is not paying$46,000 per vehicle; $295 million is the cash amount CDG is paying to Uber. The remaining $300+mil will be debt which CDG as a group assumes. In essence, CDG is paying about $100,000 per utilised vehicle in LCR's fleet.

    ReplyDelete
    Replies
    1. Hi Choon Yuan,

      Do correct me if there is any misunderstanding. To my understanding, CDG is paying S$295 million for a 51% stake in LCR out of it's NAV of 642 million.

      51% of 642 million is 327.42 million. At 295 million, it represents a 10% discount to it's NAV.

      The NAV of 12,450 cars is standing at 642 million. This will suggest that each car's NAV is $51,566. Stripping that 10% off will get me to $46,460.

      Delete