Archive for February, 2011

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.

2005 2006 2007 2008 2009
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.

2002 2003 2004 2005 2006 2007 2008 2009
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.

Debt Analysis

2005 2006 2007 2008 2009
Shareholder Equity 1345 1441 1483 1557 1690
Total Assets 3,058 3,085 3,316 3,352 4,052
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

Geographical Segment %
Singapore 56.7
UK/Ireland 24.5
China 9.3
Australia 9.1
Vietnam 0.3
Malaysia 0.1
Group 100.0


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.



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I came across an interesting research report regarding office REITs recently. It recommended a strong buy for the sector. One of the points caught my eye: 40% leverage is the new norm.

Certainly caught my eye thats for sure (I added the red font color by the way).
Being the astute reader that you are, you probably guessed by now that I don’t really like REITs.

Here’s why:
1) The nature of the business itself – I certainly understand how it works, but I don’t see how it makes sense. I am fine with the idea of using moderate leverage to fund growth – provided that the loans eventually get paid off. It seems illogical to take a substantial bank loan, agree to pay out 90% of whatever income you have to unit-holders, and than seek refinancing again in 3 years time at whatever interest rate exists.

2) The dilution of existing unit-holders – After maxing out their loan facilities, REITs than turn to their unit-holders for funds.  I have nothing wrong with the issuing of shares (I must admit, I don’t look favorably upon companies that dilute their shareholders), but again, I rather not be forced to buy new shares of companies I already own a certain percentage in just in order to maintain my X% stake of the company.

3) The downside – Low interest rate environments aren’t going to last forever. Period. It might not end this year, next year or eventhe year after that, but eventually governments ARE going to have find a way to pay off their debts. When that happens, it won’t be a pretty picture for companies that look for refinancing.

To make a long story short, this industry makes me uncomfortable. When I close my eyes and think, if the stock market closes for 5 years, would I really be confident in that X REIT would still be around? I can’t see it with a level of confidence I am comfortable with.

Do let me know your views on REITs.

PS: Nothing against investors of REITs personally. Like all things, I could be wrong and I dohope that they continue to do well for all of you out there. Just my personal opinions of the situation.

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