Comfort Delgro just reported their Q2 financial results last week and this was what I was concerned about as I’ve invested some money into it. Being affected by Uber and Grab’s private hire services, Comfort’s taxi business took a hit and sent its share price going down which makes it look like an attractive investment at that point. After I bought, the share price still continue to went down by a little and seems to have stopped at around $2.30.
Anyway, its Q2 financial results still doesn’t paint a good picture. Net profit fell by 6.8% mainly contributed by lower revenue of its taxi business and unfavourable FX from the weaker UK Pound and RMB. For its taxi business, there is lower revenue from Singapore, China, Australia and Vietnam. The only increase in revenue was from UK but it was completely eroded by the weaker Pound.
The only saving grace is from the public transportation business where SBS Transit’s bus revenue increased due to the transition to the bus contracting model (BCM) and also higher revenue contributed from higher ridership on DTL and NEL/LRT. Australia’s public transport business registered an increase in revenue too with higher charter revenue from rail replacement.
Despite the bad quarter, comfort is giving higher dividends of 4.35 cents for FY17 as compared to 4.25 cents in FY16. Cash generated from operations also registered an increase as compared to last year. It is still a financially stable company with gearing of 12.5%.
Moving forward, I’m still seeing quite a lot of comfort’s taxi on the streets but also seeing more people using the grab and uber app all around. However, we have to note that Grab incurred a combined loss of nearly US$40 Million in 2014 and 2015 alone. As for Uber, it said that it lost US$708 Million for its worldwide operations. Grab and Uber are giving discounts to riders so heavily and on top of that giving incentives to drivers too. This doesn’t seem to be sustainable. I believe when the discounts end or when the incentives for drivers decreases, the taxi industry will pick up again. I did try to drive for Uber for 2 weeks last year and from my experience, you don’t really earn much as a driver if you don’t get the driver incentives. This is what is attracting more drivers and even taxi drivers to drive for Uber and Grab instead but it will end when incentives are no longer available.
As for its public transportation business, Revenue is expected to continue to increase as the DTL 3 opens in Oct this year. Rail revenue is expected to double as ridership doubles as well. There is also the new thomson east coast line which has yet to be awarded as well.
Its PE is currently trading at 15.42x with dividend yield of around 4.5%. To me, I still think its a fair valuation and I will continue to hold on to this investment.
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