Thursday, 26 April 2018

Takeaways from ComfortDelGro AGM 2018

ComfortDelGro AGM 2018

Date: 26/04/2018

Duration: 10.00 - 11.55 am

Turnout: ~80% of the auditorium

Chairman Mr Lim Jit Poh opened the meeting with an introduction of the board and a speech on ComfortDelGro's (CDG) performance and business overview followed by a summary of 2017 financial results presented by the CFO.

Questions from the floor

Q: With regards to the current disruptions to the businesses, what are the approaches by the board to deal with these? So far CDG is using defensive moves. Can CDG be more proactive?

A: CDG is always actively looking forward though they did not say it publicly. Management and board are looking actively at autonomous vehicles and electric vehicles (EV) for now.

They are also talking to Singapore Power to set up electric charging stations.

In London their buses are already electrically charged.

They are also bringing new directors including one with artificial intelligence (A.I.) expertise to the board*.

* News of this have been announced publicly this afternoon

Q: CDG has acquired vehicle fleet from Uber. How does it impact CDG and what is the ROI?

A: The vehicles are not purchased yet. Money is not spent yet. The acquisition proposal is now at Competition and Consumer Commission of Singapore (CCCS).

CDG recognise that the sharing economy is here to stay and partnering with an existing player is the best and fastest way to go into this market.

Definitely CDG is moving into the private hire segment.

Q: What does the agreement with Uber entails?

A: Partnership with Uber app but this is ending on 7th May 2018.

Signed an agreement with Lion City Rentals (LCR) to buy 51% of LCR subject to regulatory approval.

Q: Since there will be no more Uber Flash after 7th May, what is the next step for CDG?

A: CDG will be using only CDG's own app after that. But they are actively looking around for partnership with other apps.

Q: Is Vicom ready for EV?

A: Yes.

Q: Why has CDG's inventories gone up?

A: Because of the rail business.

Q: Is CDG collaborating with Grab to put CDG's taxis on their platform?

A: Currently Grab is tying with other operator with 40% market share. If CDG also tie up with Grab, will CCCS agree? (this question is posed back by the chairman as a response)

Q: How much further will CDG push down the taxi rental fare to attract more drivers?

A: Drivers attrition rate has in fact gone down. This month might even see a net gain of drivers. So the answer to this question depends on the attrition rate.

Q: CDG has a large fleet of taxis idling. What is the current idling rate compared to last year?

A: To date the idling rate is 2 - 3% which is about 400 vehicles.

CDG downsized the fleet by swapping older taxis with newer taxis for the drivers. Scrapping older taxi is cheaper.

Q: What is the rationale for buying LCR when CDG is already trying hard to retain drivers?

A: If CDG buy LCR, they will only buy hired vehicles not unhired ones.

Q: What is the FX impact for this year?

A: 2017 FX positive impact from the AUD but pound and RMB dropped. For this year, it is the reverse so far.

Q: What is the chairman's comment on his recent interview on Straits Times about CDG having to contend with lower margin business in the future?

A: CDG has to be realistic about today's market. For example they lost the last two bus contracting model (BCM) contracts because they only dropped a little bit of margin.

Q: 9 year rule by MAS - Director who has served for more than 9 years is no longer considered independent director. CDG has 9 directors who have served for > 9 years.

A: CDG is renewing the board.

Q: Will CDG consider buying over Uber?

A: No. These tech companies are losing billions of dollars.

Resolutions: All passed.

Snippets

1) After the registration of my attendance, I had wanted to get myself a drink before going into the auditorium. However I was stopped by a lady.

I told her I just want some water but she replied if she allows that the floodgate will open. Ok reasonable enough.

Then I asked if they have bottled water inside the hall she said no as they are environmental-friendly. Ok fair enough too.

2) As for the buffet after the AGM, I did not queue for that as I did not want to join the snaking queue.

Summary and my thoughts

Chairman Mr Lim Jit Poh, is a former top civil servant and an experienced businessman whom I believe most of us would have heard of his name.

CEO and MD Mr Yang Ban Seng, is of course an old hand in the land transport business having joined the group in 1989.

I find both of them to be direct, jovial and candid when answering questions from the floor.

Both of them knows what they are saying and are sincere in doing so.

This is one of the best AGMs I have attended in terms of the Q&A.

Many good questions are asked during the AGM though many are related to the LCR acquisition.

Importantly I see the chairman took a keen interest in answering the questions from the floor. He also showed that he is a hands on person by the way he made the effort to personally explained what the individual resolutions are about instead of just reading from the notes on resolutions.

I like that.

What do I feel about CDG?

Business-wise, big challenges await CDG in the land transport sector. However they have not been sitting idly. This is evident in their aggressiveness on the M&A front with 3 acquisitions in 2017 and 8 this year so far.

From what I see, these are synergistic businesses. Whether these are profit-accretive, I'm sure the management would have done their homework.

Moving forward in the near term, the key is how they manage the private hire challenge and how they can turn that into an advantage instead.

On the longer horizon, we have to see how the recent acquisitions work out. Meaningful contributions might not take long I suspect.

Finance-wise, cash flow remains strong. Net cash position of >$590 M is no joke (though probably that has been reduced with the most recent acquisitions).

Dividend amount has been increasing every year with dividend payout from the net profit increased from 70.1% in 2016 to 74.6% in 2017. There is still room for growth.

Personally I am interested in adding ComfortDelgro at prices translating to at least 5% dividend yield for my income portfolio.

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