Comfort Delgro

[TTTI]

Anyone now eyeing up Comfortdelgro since Mr. Market is now pricing the company at a value of 5 Billion?

In my opinion, Comfort was lucky when LTA decided to pump money by purchasing its assets to improve the public transport system. This was a time when Comfort and SMRT were putting little priority on maintenance CAPEX in order to preserve their bottom line (it might be worse now given SMRT and Comfort Taxi has to fight Uber/Grab).

Through a bottom line analysis, I am expecting Comfort's segment to earn the following profits on a full year basis (Public Transport Segment: 170mil, Taxi: 50 mil, Bus station: 12 mil, auto/inspection: 80 mil , the rest about 20 mil). With its cash flow generation ability following quite close to net profits, we can reasonably expect Comfort to make about 340 mil a year (before taxation and non-controlling interest); adjusting for these, Comfort shareholders should expect a net profit of about 230 mil a year. To me, at about 21.7x PE or P/FCF, I think Comfort has some distance to fall to be seen as a fairly valued entity (15x P/FCF). This puts the Group's fair value at about $1.45 (in the face of Grab/Uber's competition) or s$3.45 billion in market cap.

As a value investor, I will strive for a margin of safety and pricing it at $1.00-$1.10 (or 2.5 billion market capitalization); makes it a value buy. It is worth noting such calculations will not hold water once Uber/Grab stops their money burning/gravy train/whatever name you call  logic defying antics.

It serves to show how much Comfort's taxi segment (especially the Singapore fleet) had been contributing to the bottom line of the group (used to be 150mil and reducing to 50 mil weakens the group's net profit and cash flow ability tremendously)

What are your opinions of Mr Market's valuation of the group now?

Strangely, I personally used a forward PE of 16+ and it's not far from your targeted fair value too.

Also, I don't think Comfort can rely on the competition (Uber and Grab) going away after they have burnt through their money.
It's a different ball game from what the traditional value investors are used to
The metrics they are focusing on is not about profitability or cashflow
They are 100% focused on market share
Cos Grab/Uber is not merely about taxis or private hire vehicles.
Their long term plan after gettting the lion's share of the market is to utilize their network for auxillary services
Think about the integration of transportation with practically everything else
A private hire car picks up a tourist from the airport, sends him to a prearrange hotel which Grab has ties with, and throughout the entire stay, private hire cars bring the tourist to various destinations. Dinner at prearranged restaurants. All part of a package.
So the key for them is their network effect. 
Right now, profitability and cashflow doesn't matter.
That's why investors are still willing to plonk in millions after millions in every round of financing, even without a cent of profitability to show for.
Because if they are successful, the end result and opportunities are limitless.
Kinda similar to Facebook's model when it was still growing.

The other way to value Comfort is to completely write off their taxi business, but assume some growth in their other segments. That'd be very aggressive, but it'd incorporate a certain MOS in itself. (Quite hard to see them completely selling off their taxi segment for nothing)

Either way, I can't see how Comfort won't continue to feel pressure from the disruptors in the near to mid term.