Famous for their blue & yellow Hyundai Taxis, ComfortDelGro (C52) is a household name to most Singaporeans. However, many will be surprised to learn that it is in fact one of the largest transport companies in the world. It has operations all around the globe – most notably in the United Kingdom, China & Australia.
|Revenue (S$’ Mil)||2497||2786||3013||3120||3052|
|Operating Expenses (S$’ Mil)||2192||2479||2676||2842||2702|
|Profit attributable to Shareholders (S$’ Mil)||202||245||223||200||220|
|Return on Equity (ROE)||15.4%||17.6%||15.3%||13.2%||13.5%|
The company has done reasonably well in the past five years considering the financial crisis (2007 -2010). Even though its core customer base in located in Singapore, it also does extensive business overseas. It has for the past five years, delivered a solid ROE of at least greater than 13%, a definite plus point in my book.
|Net Cash From Operating Activities (S$’ Mil)||546||442||619||515||548||643||574||728|
|Capital Expenditures (S$’ Mil)||-380||-245||-363||-402||-386||-328||-351||-447|
|Average Captial Expenditures (S$’ Mil)||-348||-348||-348||-348||-378||-378||-378||-378|
|Free Cash Flow (S$’ Mil)||198||94||271||167||170||265||196||350|
Cash Flow Analysis of ComfortDelGro (2002 – 2009)
Net Cash from Operating Activities has been steadily increasing since 2002. Being a fairly capital intensive company, it ploughs back a significant portion of their cash back into capital expenditures. Free Cash Flow (Net Cash from Operating Activities – Captial Expenditures) is extremely healthy. Armed with a substantial war chest and healthy cash flows, the company has been making a string of acquisitions – the most recent being its attempted takeover of Swan Taxis Ltd in Perth.
|Financial Leverage (Total Assets/S.Equity)||2.27||2.14||2.24||2.15||2.40|
As of 2009, ComfortDelGro has a financial leverage ratio of 2.4 – healthy by my standards. I do not foresee debt repayment to be a significant problem as the industry is relatively stable. Furthermore, strong cash flows help to facilitate interest and debt repayment for the foreseeable future.
Economic Moat Analysis
Despite the deregulation of the taxi industry in Singapore, ComfortDelGro continues to maintain its leadership status in the industry (63% as of 2009). Its subsidiaries, VICOM & SBS Transit also maintain similar market shares – a plus point. One of the biggest strength of ComfortDelGro is its sheer size and strong financial health. It enjoys significant economies of scales compared to its local competitors.
It must be noted however, that the transport industry (in my opinion) is highly competitive in nature. Consumers taking taxis tend not to have distinct preferences in the company of the cab they are flagging down. Their competitive edge is further eroded overseas, where they have a much smaller foothold.
The Bear Case
With local growth stagnating, ComfortDelGro has looked outwards to expand. Despite the healthy growth of its businesses in China & Australia, the outlook is much more lackluster in the UK, Vietnam & Malaysia. As these are not main income contributors, I do not foresee a significant impact on its core business. Rising fuel costs and currency translation effects will also continue to hamper their growth both locally and overseas.
Despite the challenges ahead, I feel that ComfortDelGro will be able to leverage on its strong financial health and continue to expand overseas. Potential investors should look forward to capital appreciation in the long run. Coupled with its dividend yield (about 3%), I feel that it remains an attractive investment at this point of time.