ComfortDelgro (CDG) has fallen from the high of $3.20 in June 2015 to $1.955 in September 2017. This is despite net profit increasing from $284M (2014), to $302M (2015) and $317M (2017) and dividends increasing from 8.25c (2014) to 9c (2015) to 10.3c (2016).
Despite the entrance of Uber and Grab in 2013, revenue from the taxi segment has managed to increase from $1,284M (2014) to $1,327M (2015) to $1,341 (2016). In fact, the number of taxis under CDG actually increased between 2014 to 2016 and peaked at 17,143 in April 2016.
Since 2017, we are starting to see actual profit decline from the taxi business. There were 16,976 taxis in January 2016, the number of taxis under CDG has declined to 15,556 in June 2017. In September 2017, Grab and Uber launched aggressive promo to attract more drivers from CDG by offer attractive rental discounts of up to almost 50%. So we can expect the number of taxis under CDG to further decline.
CDG's taxi revenue is derived mostly from rental revenues of it's taxi fleet at about $100/day. With a 6.75% decline in taxi fleet, the net profit from taxi segment has decreased by 15%, automative and testing has decreased by 20% and overall net profit of CDG has declined by about 8% in 2QFY17. Of the 8% decline, about 6.5% can be directly attributed to the taxi business. But overall profits for 1HFY2017 increased by 2.1% due to special dividends from CabCharge Australia in 1QFY2017.
The question is how much further will the CDF taxi fleet decline? As of April 2017, there is already 41,297 private hire car, compared to 26,476 taxis. If there is already oversupply of PHC, why is Grab and Uber still trying to poach CDG drivers? Maybe their goal is take monopoly of the taxi market, at which point, they can command the market without the needs for discounts. Moreover, we do not forget, that all other taxis, except CDG is already part of JustGrab with Grab.
My gut feel is that Uber will be driven out of the asian market, given Temasek and Softbank's backing of Grab. And how long can Grab sustain subsidizing passengers and taxi drivers just to gain market share? With new investment of $2.7B, it could be a about 4000 years. So I guess, the only stopping force is their limitation on picking up flag-down passengers and having enough drivers such that surge pricing is no long attractive for the part-time drivers.
Based on EPS of 14.75c in 2016, if we expect further decline in the taxi fleet and estimate the decline of profit as follows and the target price based on PE of 13x and dividend payout at 50% and 70% will be as follows.
Currently, net profit from the taxi business is about 36% of the overall profit of CDG. Additionally, there is 5% profit from automative and testing segment that is dependent on servicing the number of taxis. So the worse case is complete loss of 40% of the profit from CDG if comfort loses the whole taxi business completely. Alternatively, if we value the stock at 40% decline in revenue, at that value, we would be getting the taxi business for free if it manages to survive.
CDG has an historical average dividend yield of about 3% to 4% with payout ratio varying from 50% to 70%. While the historical average PE varies from 13x to 18x. As such, basing the numbers at 4% dividend, in the worst case at 70% payout, we are expecting the price to fall to $1.54 or $1.10 at 50% payout.
I am inclined to think that management is likely to try to maintain payout at 70% to reduce further shock to the price. Also, 4% dividend expectation seem reasonable to offset against the risks from the disruption of Grab. Otherwise, with a 40% decline in profit, at 3.5% yield with 70% payout, the expected price will be $1.76.
Personally, my sweet spot is a price of $1.80 as it would give me a margin of safety in case revenue does fall by 30% but I am still protected by the 4% dividend yield at 70% payout. Although I could be wrong that management decide to reduce payout to 60% or even 50% if they decide to further invest in the business (improve their booking app) to battle Grab.
Despite the entrance of Uber and Grab in 2013, revenue from the taxi segment has managed to increase from $1,284M (2014) to $1,327M (2015) to $1,341 (2016). In fact, the number of taxis under CDG actually increased between 2014 to 2016 and peaked at 17,143 in April 2016.
Since 2017, we are starting to see actual profit decline from the taxi business. There were 16,976 taxis in January 2016, the number of taxis under CDG has declined to 15,556 in June 2017. In September 2017, Grab and Uber launched aggressive promo to attract more drivers from CDG by offer attractive rental discounts of up to almost 50%. So we can expect the number of taxis under CDG to further decline.
CDG's taxi revenue is derived mostly from rental revenues of it's taxi fleet at about $100/day. With a 6.75% decline in taxi fleet, the net profit from taxi segment has decreased by 15%, automative and testing has decreased by 20% and overall net profit of CDG has declined by about 8% in 2QFY17. Of the 8% decline, about 6.5% can be directly attributed to the taxi business. But overall profits for 1HFY2017 increased by 2.1% due to special dividends from CabCharge Australia in 1QFY2017.
The question is how much further will the CDF taxi fleet decline? As of April 2017, there is already 41,297 private hire car, compared to 26,476 taxis. If there is already oversupply of PHC, why is Grab and Uber still trying to poach CDG drivers? Maybe their goal is take monopoly of the taxi market, at which point, they can command the market without the needs for discounts. Moreover, we do not forget, that all other taxis, except CDG is already part of JustGrab with Grab.
My gut feel is that Uber will be driven out of the asian market, given Temasek and Softbank's backing of Grab. And how long can Grab sustain subsidizing passengers and taxi drivers just to gain market share? With new investment of $2.7B, it could be a about 4000 years. So I guess, the only stopping force is their limitation on picking up flag-down passengers and having enough drivers such that surge pricing is no long attractive for the part-time drivers.
| Graphics from straitstimes.com |
Based on EPS of 14.75c in 2016, if we expect further decline in the taxi fleet and estimate the decline of profit as follows and the target price based on PE of 13x and dividend payout at 50% and 70% will be as follows.
Currently, net profit from the taxi business is about 36% of the overall profit of CDG. Additionally, there is 5% profit from automative and testing segment that is dependent on servicing the number of taxis. So the worse case is complete loss of 40% of the profit from CDG if comfort loses the whole taxi business completely. Alternatively, if we value the stock at 40% decline in revenue, at that value, we would be getting the taxi business for free if it manages to survive.
CDG has an historical average dividend yield of about 3% to 4% with payout ratio varying from 50% to 70%. While the historical average PE varies from 13x to 18x. As such, basing the numbers at 4% dividend, in the worst case at 70% payout, we are expecting the price to fall to $1.54 or $1.10 at 50% payout.
I am inclined to think that management is likely to try to maintain payout at 70% to reduce further shock to the price. Also, 4% dividend expectation seem reasonable to offset against the risks from the disruption of Grab. Otherwise, with a 40% decline in profit, at 3.5% yield with 70% payout, the expected price will be $1.76.
Personally, my sweet spot is a price of $1.80 as it would give me a margin of safety in case revenue does fall by 30% but I am still protected by the 4% dividend yield at 70% payout. Although I could be wrong that management decide to reduce payout to 60% or even 50% if they decide to further invest in the business (improve their booking app) to battle Grab.
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