Saturday, November 15, 2014

IPO - TransCab Holdings Review

I am usually not that interested in participating in an IPO. In my investing journey thus far, I have only participated in two of them, both which I have failed to get them. This review is on the back of request from my friend who seems to be interested in the company. So let's see where it takes us.

For a start, these are the offerings in respect of the 168,000,000 shares they would be releasing:

(i) 65,000,000 Cornerstone Shares;
(ii) 94,200,000 Shares under the Placement (including 6,350,000 Reserved Shares); and
(iii) 8,800,000 Shares under the Public Offer (subject to the Over-allotment Option).

Timetable is as follows:

12 November 2014: Opening of the Offering 
18 November 2014, 12.00 noon: Close of the Offering 
19 November 2014: Balloting of applications, if necessary (in the event of an oversubscription for the Public Offer Shares) 
20 November 2014, 9.00 a.m. : Commence trading on a “ready” basis 
25 November 2014: Settlement date for all trades done on a “ready” basis

Firstly, my comment is the public tranche offered to retail investor is relatively small, so judging from the demand, it will seem that there will be an oversubscription for the stock. They have placed a large portion of the offerings to the Cornerstone and Institutional investor, which probably means that they want stability and long term investors who placed trust in their growth story.

Core Business

The Group's main core business is in the operation of taxi services and in-house workshops, where they would be conducting services relating to the general maintenance of the taxis. 

Not coincidentally, the proceeds of the amount raised from the IPO would mainly be used to expand its taxi operations (~30%) and diversify its other transport business (~30). The rest would be used mainly for working capital purpose. 

The diversification into the other transport business, mainly Bulim Bus transportation, is a good move as there is a new contracting model which allows LTA to own the assets and lease them back to bus operators. This would allow the company to free up much of their capital in owning the asset, a move that would benefit companies such as SBS (under Comfort subsidiary). The bad news is that this is their first venture away from the traditional taxi operation business and will likely to face keen competition from experienced operators such as SBS.

Taxi Penetration Ratio

Going back to its main core business, i.e taxi operations, the number to look at for future growth potential is always going to be the taxi penetration ratio.

Taxi penetration ratio is an important indicator because in a country as small as Singapore, there are always going to be limited growth relative to the population and competition for demand. This is in addition that there are multiple taxi operators in Singapore. Comfort, Premier, SMRT, Trans - to name a few.

As much as we hear complaints from people that they are not able to get cab during peak hours, look at the ratio compared to other big cities. Singapore has as much as twice the number of taxis available per 1,000 people as compared to Hongkong and London and thrice as many as Jakarta. Incredible.

Profit & Loss

Looking at the financial highlights, we see that topline and bottomline have shown steady increase over the years. However, a closer look at the income statement and you would have found that in FY13, they recognized a one-off gain in disposal of their PPE. Excluding the one-off, profits would have been at around $23 million, which is rather stagnant with 2011 and 2012.

Gross Profit margins has averaged at around 26%-28% for the past few years, which shows that the management has been keeping the costs well under control. In case you are wondering what Comfortdelgro is raking in terms of gross profit margins, they are currently churning in at around 28.4%. It has been competitive.

Financial Highlights

Income Statement

Balance Sheet

Pre-IPO NAV is currently at 14.2 cents while post-IPO the NAV would be at 25.5 cents. At 68 cents IPO pricing, this gives their P/B ratio at around 2.6x.

Some investors have expressed their concerns regarding paying a premium to its NAV, but I will explain later why they should not be too concerned.

As taxi operators, it is no surprise that most of their assets (and therefore NAV) consist majority of their taxis, machinery and equipment, which falls under the PPE portion of the assets. These assets are depreciated accordingly over time under IAS16 which goes into the PnL under depreciation expense, which in turn was added back to the Cash Flow from Operations to make up for the cash portion. Hence, net equity does not really suffer in that sense.

The book value of an asset reflects its original cost and in this case, it doesn't really help that the assets are aging and depreciating over time. In other words, I don't know if price to book value is a good measure to value this sort of companies. Take a look at Comfortdelgro and SMRT. They should be trading above P/BV as well.

Balance Sheet

Dividend Policy

I believe their dividend policy in the future would be somewhat similar to Comfortdelgro, who agreed to pay out around 60% of their earnings. For a company that requires plenty of CAPEX, it doesn't sound rationale to increase their payout any further. So we could be looking at a pretty low yield similar to CDG.


Finding a good business is about prospecting the future growth of the industry and opportunities. Looking at the relatively muted growth for the Singapore taxi operations for CDG, it is hard to see how Transcab can do better than the blue chip counter. CDG is looking to expand elsewhere beyond the Singapore market, given the relatively higher margins and opportunities, and it is difficult to see how Transcab can be one step better than CDG. They may do okay but not great and in that sense, I just have feeling that they don't have the required business moat to grow much in the future.


  1. Hi B,

    Thanks for the review. Just do not see how TransCab can compete with CDG. The small island of Singapore is really saturated already.


  2. Hi PIF

    I share your sentiments.

    I dont see how this story growth can be better than comfort if one wants transportation in their portfolio.

    Even in terms of price earnings I think cdg is still trading cheaper at 14x (need to double check)

  3. What are your thoughts on companies like uber and lyft? They've been giving taxi companies a run for their money here in the United States.

    1. Hi Henry

      Thats a good question.

      Uber have been a threats to nany taxi operators worldwide. The last time we valued them they are at $17 billion and a lot of conglomerate like google have a stake in them.

      Here, they have been a threat to the taxi opertors because part of the revenue is obtained from booking which is a mandatory requirement to set up for the taxi operators here. Unfortunately Apps like Uber and Easytaxi have come in and disrupt these so they are indeed a major threat just like they did in the US.

      Thanks for visiting.


    2. HI B,

      I have to disagree with you there. Uber an Lyft is no serious threat to Comfortdelgro because its core business is leasing of taxis (i.e. driver pays Comfortdelgro to rent a taxi).

      If I'm not mistaken, even the booking fees is a partial split. Therefore assuming every comfortdelgro uses Lyft or Uber, I reckon the impact is mininal.

      Either that or Comfortdelgro just raises its rental price per taxi.


    3. Hi JW

      Thanks for your insightful thoughts there.

      I agree that the impact is minimal but they are part of the revenue which comfort is taking at the end of the day. I did a project on comfort not too long ago and if I still remember correctly the company takes around 30 to 40 cents for every successful Booking they get. The company is still taking in these revenues because they are incurring the cost from the call centers they had in attending to these bookings.

      I also remember that the price and margins are controlled regulatory, so they would not be able to raise the rental price to the drivers as much as they would like it to be.

      This will be my thought but good take there.

    4. Likewise B, always good to hear another perspective.

      You and 15hourworkweek are inspiring me to start my own blog. Now if I can just focus and get it started....


  4. I would assume TransCab have done their due diligence in determining now is the best time for them to IPO. Also the best valuation and climate to milk both institutions and retail investors for funds.

    1. Hi EH

      You are right.

      I think the current environment is conducive to raising funds. Some do it via issuing bonds while others via IPO equity. The economic is predicted to improve and we should see positive sentiments generally from the market.

  5. Replies
    1. Hi Felix

      Thanks for your compliments :)

      You had a good review of this IPO as well.

  6. Hi B,

    Thanks for the article. Like you, I am not into IPO though I do read on it.

    Few times on cabs, I heard drivers said that CDG has very stringent policy and demerit points system. Many of the drivers who were penalized and removed, leapfrogged to other operator such as Transcab who has less strict policy.

    Also heard from Taxi drivers lately that islandwide taxi numbers will rise next year. Not sure if it is true.

    By the way, I am vested in CDG and like its overseas expansion growth potential.


    1. Hi Rolf

      You must have made quite a good decent return on CDG. That counter is simply awesome and I think there will be further upside based on potential growth organic and inorganic.

      The one thing Transcab will need to do is differentiation. If they can do something to its operational, system implementation, needs of the customers which is different from what CDG is currently doing, they may be on the way up taking the advantage over from CDG. It's an unknown future.


    seems like 2013 earnings were boosted by one offs, any view on that?

  8. Quite shocked to hear that the IPO got cancelled.
    better luck next time guys

    1. Indeed disappointing.

      This news will not go well next time they decided to list.

  9. Amazing. Citing insurance cost as reason! Could it be the real reason?

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