Saturday, December 9, 2017

Comfort - Uber Partnership, Good or Bad?

This article is re-posted here with the approval of a member (Hachiko) from the InvestingNote platform.

Finally compiled a list of positive & negative views from as many members as I could. Tried to tidy up the points. Feel free to comment below if you need me to add more points (provided they are reasonable)


1) With Lion City Rental (LCR) operations off their hands, hopefully Uber can focus on what it is supposed to do best. Improve their routing and pricing algorithm to compete against Grab. One has the booking apps and big data expertise and one has the fleet management and service expertise. 
Both can focus on their expertise. Uber on improving the apps and algorithm, fare and integration/development of different booking services. Cdg on fleet management, utilisation and cost efficiency on maintenance and servicing. The collaboration can also establish themselves as a premium operator as Cdg/Uber have a larger and newer fleet compare to Smrt/grab.
2) Potential increased rental revenue from the larger car fleet.
3) With CDG’s decades of taxi rental and fleet management experience, it will manage and rent out the cars properly and profitably. CDG will not burn cash. The acquisition price is below NAV, $40k per car (3-year old car), can you buy a 3-year old car now at $40k in Singapore? Another bonus, reports mentioned the money for the acquisition is paid by internal funds, it will not affect the EPS so dividends will not be cut. Their automotive workshop is empty, so just nice LCR cars can come in for servicing & repairs.
4) CDG acquired the car rental business at a discount instead of premium price. if things don't work out they can sell, scrap or export the cars but they get to use Uber booking app platform and to fight directly with Grab.


1) Judging from the sharp decline of price this entire week, it is possible that insiders already knew about this deal and they are not sanguine about it.
2) CDG itself is already struggling to rent out its taxis. Its fleet has shrunk steadily throughout 2017. The number of drivers applying for new taxis has also fallen off sharply in recent months. LCR has lots of unleased cars too parked at Big Box, Peace Centre, Textile Centre, etc but the sheer volume of cars seen here is telling of their struggle. LCR is loss-making. It is bleeding cash.
So, this makes taking over LCR a bad idea. A bad car rental based company sticking to their dying model, and sinking another large sum of money into another rental based company, which has a similarly sullen reputation from the issues that they give drivers when they are returning their rental vehicles (word on the street). This feels like CDG is throwing more good money into a sinkhole.
3) This deal feels like CDG is paying Uber to use its platform/software. CDG paid their fair proportion of net assets of a loss making company just to participate in the private hire market. Few years ago, Grab approached all taxi companies to collaborate and CDG was the only one who refused to. The other smaller players all joined. CDG could’ve participated using Grab’s Platform without paying for it. Now it’s paying 51% of the net assets of a loss-making company with a lousy partner (Uber).
Grab is so much stronger than Uber, they wisely stayed in South-east Asia where they have competitive local know-how, without stretching themselves thin.In comparison, Uber is a joke. They are fighting wars on so many fronts, many of which are not actually related to operations. (Sexual harassment suits?!)
4) Uber is primarily a tech company. It is not interested and not able to run a car rental management company in the long-term efficiently. So, Uber is more than happy to ‘offload/dump’ its huge fleet of cars to CDG. This is also why Grab was unwilling to completely buyout SMRT taxi.
5) LCR has $1 billion debt as at Dec 2016.
6) LCR may be under CPIB probe.


ThinkNotLeft said...

Your compilation of positive and negative views are very comprehensive. And it push me to stick to my original position of avoiding Comfort Delgro (CDG). Insofar, I have not bought into CDG, as CDG is facing structural challenge (i.e. threat from Grab). Such structural challenges are not temporary and could be fatal to its taxi business.

Dividend Tech Warrior said...

Hi ThinkNotLeft,

CDG's taxi business is definitely in a highly-disruptive operating environment right now. It contributes roughly one-third of CDG's earnings. The other two-thirds of earnings come from rail/bus/engineering businesses. The majority of its revenue comes from its local and overseas subsidiaries which are still performing alright.

I shall wait and observe its next quarterly results. Right now, I am holding to me 7k shares, but not likely to add more.

Cheers! :)

Cory said...

Personally I like to hear more from the management. So far their decision seems horrible. Not vested.

Dividend Tech Warrior said...

Hi Cory,

According to people who attended the previous AGM, shareholders' questions were brushed aside nonchalantly. My friend had a negative impression of the management. Hope they do better next year.