Wolf Money(Comfortdelgro Cooperation Ltd) Situational play bowl
I have included Comfortdelgro(CDC) into my situational play bowl. There are a few points which I found the current operating environment to be more conducive for CDC.
1.) Our government and the UK government are dead set on reopening the respective economies given the language used by the politicians in both countries. “ You have to live with covid whether you like it or not”. With two countries contributing 75 percent of revenue,CDC is likely to see an uptick in revenue in both countries if the path toward reopening continue.
(UK and Singapore are key market for CDC)
2.) 1H 2021 result is encouraging with net profit coming in at 91m which resulted in eps of 4.2c. Interim dividend of 2.1c had resumed since last year.
3.) Taxi revenue had fallen to less than 13 percent which doesn’t affect profit of CDC as much as previously. Ground chat with drivers indicate better value to drive a taxi than to be private car hirer. On the consumer side, there are some push back on private car due to additional charges imposed by Grab. I also find it cheaper to take the taxi now. I presume the demand is elastic for price sensitive consumers. I predict a steady state in number for taxi on the road. The number is unlikely to drop much given the substantial reduction in fleet size over the last 5 years.
4.) Very stable earning from contracting bus service. SBS transit are almost certain to make a profit due to cost plus profit model. Half year earning for SBS Transit is up 12 percent even with less government subsidy.
5.) Vicom earning is up 24 percent in the latest half year report. Vicom is a duopolistic business where yearly inspection of the car is mandatory by law.
6.) Return of the tourists end 2021 or early 2022
Situational
7.) MOT(Ministry of transport) is reviewing financing framework for Downtown Line(DTL) which SBS Transit had been operating at a loss since 2017. The likely situation of the new arrangement will be similar to the bus contracting model where the government take on fare revenue risk and SBS Transit will be given a cost plus profit to operate the line. Any news on that front will be earning accretive for SBS Transit which will in turn benefit Comfortdelgro.
8.) Potential listing of CDC Australia arm. Market report had an indicative value of more than a 1B. The timing of the listing is at best unclear.
Risks
1.) Re lockdown of Singapore or UK if there is another more deadly covid variant.
2.) Covid 19 had given rise to WFH arrangement which make going to office a less frequent affair which hurt demand of public transportation and taxi revenue.
ComfortDelgro has a divided opinion in the investment community. It really depend if one is viewing it with half bottle full or half bottle empty. There are no doubt CDC with it strong balance sheet(cash 892m or net cash 417m) and net operating cash flow(150m) can weather any crisis with distinction. CDC for you? You decide.
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