15-11-2014, 09:20 AM
(13-11-2014, 09:27 PM)r0n Wrote: [ -> ]My understanding regarding the gain on disposal of PPE is that it relates to the disposal of their CNG taxis as they are phasing them out currently. Not sure whether adjusting for such gains on disposal is useful as fleet renewal is part and parcel of their business.
As for the IPO price of 0.68, the adjusted PE would be somewhere above 20, which is probably higher than ComfortDelGro (~20) but lower than SBST (~39) or SMRT (~30). While they are still in the PE range of the listed companies in the transport industry, it may not be a good buy at IPO prices.
Ya the PPE relates to disposal of taxis. The significant disposal gains, as compared to earnings growth, suggests the taxi residual value need to be revised upward for some taxis.
Currently, the effects on earnings as follows:
1. Transcab had lower earnings before 2011 due to higher depreciation since the residual value is lower and thus more depreciation is charged.
2. These earnings are moved into the current IPO accounts period from 2011 to 2013 giving the impression of 20% growth in earnings per annum, by selling the overly depreciated taxis for a one off gain.
3. If this lower residual estimate for remaining taxis is not corrected, every year Transcab may choose to sell some taxis to make earnings meet expectations of share holders. This is moving earnings from past(over depreciation) to the future(gain on sale).
If we ignore tax effects, to adjust we need the following:
1. pg 282: Transcab's accounting policy is to depreciate taxis over 7 years.
2. Assume the taxis that were sold have reach 7 years of life. Thus the gains need to be divided by 7 years and added back to earnings to adjust for over depreciation of the taxis from 2011 to 2013...... (more on this later in 5)
3. Pg 295: Gains(2011 -23k, 2012 5766k, 2013 13504k). Depreciation to add back = Gains/7 = 2011 -3k, 2012 824k, 2013 1873k.
4. Adjusted earnings = Earnings - One off gains + depreciation to add back = 2011 24,013k; 2012 23,154k; 2013 25,274;
Net profit margin = 2011 15.5%; 2012 13.7%; 2013 14.3%;
1.7% growth in earnings per annum from 2011 to 2013.
5. If the taxis were sold earlier than 7 years, the gains would be divided than something less than 7 and thus have a higher depreciation to add back. Thus the estimate above is an underestimate of the adjustment needed.