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QuestionsCategory: Business QuadrantComfortDelGro Valuation Method
Michael Lim asked 5 years ago

Valuation Method
Like to check, from your perspective, what is the suitable valuation method for ComfortDelGro, 
I have identified 3 valuation method, 
PE: It has predictable earning coming from Taxi, Buses and Vehicles maintenance sector 
Dividend Yield: It has been paying dividend for a number of years. With a trend of increasing dividend over the years
Price to Book: It has heavy assets in buses, Taxis and Railway.
Would you agree that the 3 ratio would present an accurate picture of CDG valuation.
 
Disruption by Uber,Grab
Taxi income make up about 30% of CDG total revenue. I was monitoring whether CDG was hit by Uber and Grab disruption, hence i was surprised to see in 2016, the taxi business even managed to grow by 1.1%. So far, the disruption has not been great. 
However recent headlines include the

I would like to hear your views on how great will Uber or Grab disruption on CDG taxi business in the years to come based on your observation. 

1 Answers
Victor Chng answered 5 years ago

Hi Michael, 
Valuation
you are right on PE and dividend yield. I will suggest you to use price to cash flow rather than book value. I don;t view their vehicle as assets as they are depreciating asset instead of appreciating asset.
 
Disruption by Uber,Grab
Technologies disruption is inevitable which the company must learn to adapt to it. Uber and Grab are technologies that disrupting the market but they are currently losing money as they are trying to attract more driver by paying lucrative commission to expand market share. In the past, I use to take taxi after that I switch to uber because of  better service and cheaper price but recently, I think the losses that Uber made last year really affected them and their fare are not cheap now. Sometime it can cost more than the taxi which is the reason why i switch back to taxi. The local government is also making Uber and Grab drive to take licenses to further regulate the industry. What I am trying to say is that in order for Uber and Grab to compete with CDG in a longer term they have to be profitable instead of spending money to capture market share and continue to make losses. Moving forward I think CDG will face headwind on the taxi side because the supply increase in Uber and Grab car to capture their market share. CDG will only turn out as winner when Uber and Grab are not sustainable in making profit and have to shut down.