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QuestionsCategory: Business QuadrantRecovery Stocks
Theodore Tan asked 1 year ago

Hi Victor, will you be able to provide some stock ideas on recovery stocks. Hopefully from US or HK market as well.
Comfort and SBS are definitely one of them.

4 Answers
Victor Chng answered 1 year ago

Hi Theodore,
We are not license to give any stocks recommendation. You may want to give me some of your ideas and opinion, from there I will give some of my opinions. 
Alternative, we are releasing a video on our youtube channel tonight on some of the sectors that will benefit when vaccines is available. You can keep a look out for it.

Theodore Tan replied 1 year ago

Hi Victor! Yeah your youtube channel is quite timely! Will look at it!
But also want to look into your perspective of Comfort Delgro. I bought it at around SGD 1.4.
Using your taught technique of valuation, it seems to be able to trade to SGD 2.80 range (including standard deviation of P/B ratio, Mean P/B is 1.94. Std is 0.4.

Thank you!

Victor Chng replied 1 year ago

Hi Theodore,

Comfrot Delgro is a operating business instead of an asset business. Hence, I think PE ratio is the more appropriate valuation than PB ratio.

Theodore Tan answered 1 year ago

Attach my valuation file.

  1. Prob the stock went up in anticipation of UK\’s economy recovery. Lock down will lift up on 1st Dec
  2. Stock is still waiting for SBS Transit to join in the rally. Phase 3 probably helps but given the restriction that the singapore govt will be giving. it is unlikely to raise much until dormitory workers are allowed to go to little India. North East Line is operated by SBS Transit
  3. Taxi Regulation has kicked in. So Grab does not have the ability to \”dominate\” anymore. This seems like an economic moat to me.
  4. I expect Comfort to trade up to Mean P/B. Let me know what you think! 
  5. Your course really helped a lot! Appreciate it! 
Victor Chng replied 1 year ago

Hi Theodore,

Personally, I think that the taxi business of Comfort Delgro been disrupted as you can see their revenue for taxi decreasing from $1329 million (2015) to $669 million (2019). Hence, even if there is a regulation being set in place, it does not change much of the consumer habits.

Even though Comfort is being affected by the taxi business, there are still other businesses that are performing and not much disruption such as SBS Transit (that you mentioned) and Vicom.

I think most people purchase into comfort due to their dividend, therefore the key is whether they are able to maintain or increase their dividend. In that way, then you can see the share price of comfort recovered. To be conservative, I suggest you to remove the whole taxt business and calculate the remaining profit and see whether it is sustainable to maintain the dividend.

Theodore Tan replied 1 year ago

Hi Victor,
Thanks. very advanced input from your side!
I will try and update.

Victor Chng replied 1 year ago

Welcome :)

Theodore Tan answered 12 months ago

Hi Victor I tried removing the operating profit of the taxi business and I ended up with the following excel sheet.
In summary, I managed to compute EPS (without taxi business). Using that as earnings from 2015 to 2020. I managed to do a Price to Earnings Ratio and obtained an average of 22.74. My selling price is $3.59 for Comfort (without the taxi business).
But it looks a bit weird. Should I use current PE Ratio (includes Taxi) and multiple by the EPS(without Taxi) to get the correct stock price?
Is there anything else I can adjust?

Victor Chng answered 12 months ago

Hi Theodore,
To make things simple, you just multiply by the average PE (include Taxi). The key is the margin of safety that you are paying. 

Theodore Tan replied 12 months ago

Hmm do you mean that if the price to pay (excluding Taxi) is said $2. and I paid less than that. It shoukld be ok to hold this stock for dividend long term?

Victor Chng replied 12 months ago

If the IV is $2, I will like to have at least 20% margin of safety. So the amount that I may look at will be around $1.6.