Comfort Delgro

[TTTI]

Hi TTTI,

Sharp observation. In South East Asia, there is a mixture of Grab Sharing apps; which makes me wonder if these apps themselves are trying to lower car rentals to the lowest possible way and Comfort is stuck with taxis which it has paid at high value. Can Comfort really compete with car leasing companies of Uber/Grab at a zero profit level? Or does comfort have to go a loss making but above cashflow breakeven level.

* Cash flow break even level is not the same as P&L.

To be conservative, one must assume that the latter scenario is certainly possible
CDG paid for expensive COEs when building their fleet a few years back, prior to Grab.
Their expensive investments will have to be depreciated/amortised over a 5yr/10yr period of time.
Compare that to Grab, which has to depreciate.... nothing. (for private hire vehicles)
I won't be surprised if this segment goes into the red, but I don't think they'd get negative CFs from this segment.
The good news is that as they take cabs off service, operating costs will also be cut rapidly.
And actually, I agree with CDG's management idling cabs rather than cutting rental rates to try to support utilisation.
The supply of services has now far exceeded the growth in demand, and it's not going to turn. Trying to fight for market share with Grab by burning cash, is a losers' game. One can win the battle, yet lose the war.
I much rather they take the pain by shrinking this segment now.