Monday, September 25, 2017

What Happened To Comfortdelgro? - The Taxi In Distress

Comfortdelgro has been on the hot seat for the past few weeks with share price dropping to a low of $1.98 now. Grab and Uber seems to have an upper edge in this taxi business competition. It is crucial to review Comfortdelgro's business at this junction to see what it is really worth. Separately, it didn't manage to get the new Thomson East Coast line which could have boost its operating profit by about $12-$18 Million a year. Let's take a look at its different business segment and break it up to see what it is really worth.

Public Transport Services Business

This is essentially its core bus and rail business segment with revenue at $1147.8 million and operating profit at $86.2 million for 1H 2017. If we annualised the revenue, assuming this segment continues to grow at the same rate, we should see revenue at $2294.2 million. For this segment, there will also be contribution from DTL-3 which will be opening in October 21 this year. If we assume their ridership to double which adds about 200,000 ridership daily, the revenue contributed for this FY will be around $8 Million. 

We should see operating profit for the full year at $177.3 million. 

FY2017 Operating profit: $177.3 Million

Taxi Business

This is the tricky part to analyse but I will try my best to make sense of the numbers. Revenue stands at $618.5 million and operating profit at $72.3 million for 1H 2017. The fleet size of comfortdelgro is about 15,472 as at July 17. This is down from the fleet size of 16,821 in 2016. I estimated the rental of each taxi to be $120/taxi per day. At this junction, the taxi business is estimated to shed $59 million in revenue for the whole FY2017. 

The estimated revenue drop for Singapore's taxi business alone will be around $59 million. There are still other countries' taxi segment which may also face headwinds. If we assume a $70 million drop in revenue, full year FY2017 revenue should come in at $1270.8 million. 

Assuming total cost stays the same as FY2016, operating profit should come in at $97.5 million.

FY2017 Operating profit: $97.5 Million

Bus Station

The bus station business should remain stable. 2Q 2017 profit came in at $3 million. Annualised this, we should see a profit of $12 Million for FY2017

FY2017 Operating profit: $12 Million

Automotive and Engineering

This segment will see a decrease as lesser taxi fleet size means lesser servicing revenue also. 2Q 2017 profit came in at $11.4 million. Annualised this, we should see a profit of $45.6 million. A further reduction of taxi fleet will put pressures on this segment moving forward. So a conservative profit of $45 Million can be expected. 

FY2017 Operating profit: $45 Million

Inspection and Testing Service

This segment should remain stable too. Profit for this segment should come in at around $30 Million for FY 2017. Q2 2017 came in at $7.6 Million. 

FY2017 Operating profit: $30 Million

Car rental and leasing

Car rental has been facing a lower leasing fleet in Singapore and China. The profit should be about $6.4 Million for FY2017.

FY2017 Operating profit: $6.4 Million

Driving Centre Business

This segment should remain stable. Profit for FY 2017 should come in at $11.2 Million.

FY2017 Operating profit: $11.2 Million

Total Value of CDG's business

Now, we can add up the different segments and get the FY2017 estimated profit to derive the actual value of the company. Total operating profit for FY2017 should come in at $379.4 Million. This is 17.9% lower than in FY2016. With this, profit attributable to shareholders should come in at $246.6 Million. 

With outstanding shares at 2162.8 Million, EPS will be estimated 11.40 cents for FY2017. With this EPS, PE ratio will be 17.37 at current share price of $1.98. 

To put things into perspective, if the taxi fleet decreases by another 2000 for the next few months, EPS will be about 10.4 cents. This means the PE will then be 19.04 at current price of $1.98. Looks like at current price of $1.98, it will only seem fair if taxi fleet does not drop too much again. If taxi fleet continues to drop drastically, the situation can get much worser. 

Business times had a very good article on Comfort Delgro valuing its business at $1.70 if we exclude the taxi business. This is using a simplistic 20 times multiple of net profit. Of course, this will only happen if all Comfort taxis disappear from the streets once and for all which I don't think will happen at least for now.

It is also interesting to note that despite all the competition, the average daily number of taxi trips only slightly decreased by about 1 trip per day as compared to 2016. Comparing to 2015, the average daily number of taxi trips decreased by about 2 trips per day. Average daily number of taxi trips stands at 17.8 for one shift taxi and 27.5 for two shift taxi as at July 2017. This means that taxi drivers can still earn quite a decent income even with the fierce competition from private hire cars. 

There are many factors to consider in this investment and it is definitely not for the faint hearted. From my perspective, Comfortdelgro's taxi business should still continue to exist in Singapore but probably at a smaller market share in the future. It would be quite hard for it to go back to its $3 stock price value as the market adjusts itself to consider the future value of the company. For grab and uber, it is still an unknown how long they can keep offering discounts and burning cash month after month. How the taxi industry will evolve in the future will be for all to see.

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Wednesday, September 20, 2017

The Two Japanese Reits Which Got Acquired - What Can We Learn From This?

It has been a fruitful journey investing into Japanese Reits for the past few years. Saizen Reit was the first Japanese reit which was acquired earlier before. Recently, Croesus retail trust, a Japanese reit which owned Japanese shopping centres was also successful acquired just last week. What makes them so attractive that both reits from Japanese were bought over at a premium price?

I've written extensively on Croesus Retail Trust as early as back in 2013. The timeline of the posts are as follow:

The purpose of the sharing of the previous posts is to look back at my thoughts and why I invested in Croesus in the first place. Time pass very fast. 3 years plus just went past like that. As you can see, in April 2015, I went for a Croesus retail trust retail investor day where I manage to hear from the top management of Croesus itself. I wrote in my blog that I was happy with what I heard and the management knows what they are doing. As soon as a rights issue came, I immediately subscribed to it to increase my holdings in this investment.

Last week, Croesus was acquired at a price of $1.17. My average price for the reit is about $0.80. This represents a gain of 45%+. Including dividends, the total ROI for this particular investment works out to be about 81%. It was a long journey nevertheless.

What caused the Reits to get acquired?

The most important lesson is to find out what cause the reits to get acquired and hopefully we can always buy into the right companies which generates value for shareholders. In the case of Croesus, when I first invested in it, it was purely base on the fact that the Japanese government was aggressively trying to expand their economy through quantitative easing. They had a target of 2% inflation back then when Japan was facing decades of deflationary economy. Noticing that this was an opportunity, I went to search for companies which deals with properties in Japan. Saizen Reit and Croesus came up as an investment choice.

Next, I looked at the stability of its income which is important for a reit or business trust. Saizen reit was in the residential rental business so it was really stable. It was rare for a reit to be in the residential business. Croesus on the other hand is involved in shopping centres which had some risk in itself. However, upon a closer look, Croesus management were quite committed in achieving good value for shareholders through the many positive rental yield acquisitions and AEIs. They were committed in keeping the company's balance sheet healthy also.

Finally, the Japanese reits was trading at an attractive price which was below their book value. Many of their properties were valued conservatively when you compare their properties valuation against the other nearby properties. Furthermore, Japanese real estate and rental prices were going up steadily over the years which was an added positive development. All these attracted other big investors to offer attractive prices to takeover the 2 companies. Sure enough, it happened and shareholders got rewarded.

There will always be more opportunities in the future for those who missed it. For fellow shareholders of Croesus retail trust, congrats to all!

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Tuesday, September 12, 2017

5 Lessons I Learnt From Those Who Have Achieved Financial Freedom

Let's be honest, all of us want to be rich. I started my financial journey many years back by finding out how the rich manage their money and how exactly I can do it like them. However, most probably, the information you've been finding is all directed at the super rich. How about common people like you and me? Are we able to have a little more money so we can not worry about it anymore?

Throughout the years, I've had the opportunity to meet and speak to people who have became financially free. Every time I talk to them, I learnt something new and truthfully, its not as complicated as we thought it would be. In this article, I will list down the lessons I learnt from my interactions with these individuals who have managed to get out of the rat race.

Lessons I Learnt From Those Who Have Achieved Financial Freedom

1. Financial freedom is not just about saving money

The first lesson I would bring out is that financial freedom is not just about saving money. Oh wait, do you mean I don't need to save money? That is not true either. I've seen people who have achieve financial freedom as a single person, as a married person and even as a person with kids. When I look at their lifestyle, certainly it is not just about saving money.

Most of the time, we start off our financial journey frantically saving as much money as we can. However, in our younger days, we would realise it is very difficult to save money not because we spend too much but because we have limited income. As our income increases, we would find it easier to accumulate wealth. This brings me to my next point.

2. Low income is not easy to achieve financial freedom

Income is an important equation in financial freedom. To put it simply, if we earn $2000, saving $1000 is 50% of our salary. But if we earn $4000, saving $2000 is 50% of our salary. It is impossible to save $2000 with only a $2000 salary.

Therefore, it is important to focus on upgrading our skills to increase our income. When we are younger, we should focus on getting more experience so our value becomes greater and greater. If we are unable to go up the corporate ladder, there are many other ways to create more income through part time business and freelancing etc.

3. Cash must always be flowing

Another lesson I learnt is about cash flow. The reason why its called cash flow is because it must be flowing. In business, if cash flow stops, the business is in danger. This happened to several oil and gas companies who could not generate enough income to redeem back the bonds they issued out. In our personal lives, this is liken to having not enough income to sustain our lifestyle. This could be due to overwhelming debt because of poor financial management or just pure overspending. It could also be due to not enough income or not enough cash to sustain our life if we lose our jobs.

4. Make your money work for you as early as possible 

This point is about investments. When I speak to those who have achieved financial freedom, they would always say that I'm still young and its the best time to grow my money now. Then, when they talk about investments, its always not about the hot stock or the best tips but about the most boring and routine investments they keep doing over and over again.

The safer the investment, the better it is. That's the wisdom I learnt. It can be so safe that they even recommend putting your money into CPF to get the 4% interest which is sort of guaranteed by the government. For stocks, we just have to buy low, get dividends and sell high. One strategy I've heard again and again is buying into stocks at an attractive valuation, selling partially when its at a fair price and then buying back again when it goes back down. This is like keeping a base of your capital in the stock and then trading around it over time.

5. Live off dividends and you've reached financial freedom

Many have stopped working because they realised they could survive on stock dividends alone. This is the path to financial freedom. We must know that achieving this is not by buying into the stocks in just a few days or a few months. In most cases, this takes many years to build, buying into opportunities when it comes. For example, some of them have stocks in their portfolio which they bought at such attractive price that the dividends they received have covered their initial cost and they are still getting dividends until now.

When crisis strikes, the dividends can be more than 10% when the stock price is very low. This happens for most Reits during a crisis. If the company survives the crisis, the price recovers and dividends increases as well. Its such a good investment that you won't even have to sell the stock ever again.

Financial Freedom Is A Journey

There you go, 5 lessons I learnt from those who have achieved financial freedom. The last and final wisdom I would like to share is that financial freedom is a journey. It certainly takes time and patience to stick with what we have to do. We should never think of getting rich quick as it could land us into a much worse state than what we can imagine.

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Tuesday, September 5, 2017

Optimising Joy In Spending

As people who are embarking on the path to financial freedom, sometimes we may be too hard on ourselves when it comes to spending. Recently when I looked at my credit card statements and realised I've spent more than I should, I can't help to think if I've lost track in my financial journey. But upon closer look at my financial situation, it really doesn't hurt to spend a bit more. A few hundred dollars more spending doesn't really hurt much, does it?

As a financial blog, I've been writing a lot on save save save. But perhaps, we could derive joy from spending and still achieve our financial goals. How can this be done?

The secret is in optimising our joy in spending. When we tell people who have trouble saving money to cut down on their expenses, it can be hard. People would say "Why you save so much just to bring it to your grave?", "Isn't it miserable not to spend?", "If we save so much now then what if something happens and we can't even use the money already?".

Let Joy drive your spending

Let's be honest, there are some things we derive joy from and some things which we don't. Somehow, even if we don't derive joy from, we still spend nevertheless. For example, you're an introvert and you spend your money going to bars which you don't really enjoy. However, you like going to the gym but because you spend most of your money going to bars, you don't have much left for a gym membership.

Or if you love travelling with your family and friends but because you bought a new car which you don't really need which results in you needing to pay a huge amount for the monthly instalment that you do not have much left for a vacation. In this case, it would be better to find cheaper alternatives for transportation and free up more cash for overseas trips.

Also, maybe we have signed up for various cable TV channels but we don't even watch TV much? This money could be spent better elsewhere such as going for a nice meal with your loved ones.

The key is to optimise joy in spending by deriving joy from it. It sounds simple but you'll be surprised many people spend money on things they don't enjoy at all.

Optimising Joy In Spending

Many years ago, I heard a saying that if you can buy things without looking at the price tag, that's the time you have reached financial independence. However, I'm sure most of us here still look at price tags before we purchase stuffs else we'll be broke by now.

I try not to look so much at price tags now but at the quality of the product. Even if I see something as "expensive", I will think about the quality of it and whether I do derive joy from this spending. For example, a holiday may be "expensive" if we travel on a non budget way. Taking Singapore airlines is more expensive than taking budget airlines but the quality and comfort is a vast difference. Going for a better hotel may cost us a lot more but the comfort of our family and the experience will make it worthwhile.

It has been proven that spending money on experiences brings us more longer lasting joy than buying stuffs. We may have bought some gadgets and forget about it 1 year later but the experience and joy of travelling with our loved ones can still be felt even many years later. Think about the last happy time in your life. It probably is some experience you had with your friends and family isn't it? Now, think about the clothes or gadgets you bought last year, can you still feel the joy of buying it? Probably not.

Action time

Now, for your own life, are you able to optimise joy in your spending a bit more? Why not review the ones which doesn't bring you much joy and channel the free up cash into things that bring you more joy? In this way, we could be even happier prioritising on the right stuffs.

Lastly, remember that spending money on experiences brings us more long lasting joy. It could be a good family meal, a meet up with friends or a vacation with our loved ones. We will certainly remember the experiences we had even many years later.

Let's optimise our joy in spending!

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