To The Moon

Short term bullish outlook for CDG?

$COMFORTDELGRO CORPORATION LTD(C52.SI)$  (CDG) recently announced an increase in flagdown, distances and waiting times fares. There will be a S$0.50 increase in flagdown fares, a S$0.01 increase for distances and waiting times to S$0.26 for its regular fleet. Whereas its limousine taxi will maintain the original flagdown fares with S$0.01 increase for distances and waiting times to S$0.36. Under the revised fare structure, the company estimated that cab fares for a 10km off-peak normal taxi trip will be 6.8% higher.

CDG will also extend peak hour surcharge for all taxis by one hour to cover the period from 5pm to 11.59pm (previously 6pm to 11.59pm), effective Monday through Sunday, including public holidays. It also introduced a new peak hour surcharge from 10am to 1.59pm on Saturdays, Sundays and public holidays.

The fare structure changes are targeted at metered booking and for cabbies' income to remain stable amidst higher costs. With rising fuel prices, high inflation and the impending GST hike to 9%, cabbies are facing higher operating costs. To ensure cabbies continue to retain similar level of real income, a revised higher fare structure is required. The revised fare structure is expected to be effective at 6am from 13 Dec-23.

Other taxi operators are expected to follow suit in the next couple of weeks. During the last taxi fare revision in Mar-22, other smaller taxi operators followed CDG’s footsteps of increasing various fare charges within weeks. Hence, it should be similar this time as it would be in their interest to follow suit to avoid driver attrition to CDG.

There will be an estimated S$3m additional commission with the revised fare structure. On the Zig app, consumers can opt for either metered or market driven fare. The higher metered fare will likely set a baseline for market driven fare and lead to potentially similar levels of price increase for market driven fares. With overall point-to-point (P2P) market being driver supply constrained, demand for taxis at likely to remain strong even with a 7% price hike. Assuming an overall 7% increase in fare, it is estimated that CDG will earn an extra S$3m in platform commissions annually, which will translate to around S$2.5m post-tax earnings.

This piece of "bad news" for the public could also be a good one for investors. This could possibly generate some short term bullish sentiments after seeing CDG's price being beaten down for so long. Recent analysts' TPs pegged the price between S$1.38 to S$1.69 with an average price of $1.56.

Employees doing overtime will still take taxi home and claim from the company regardless of any fare increase. Youngsters who party till late night will still have to take the cab. Other groups of passengers such as those with mobility issues or travellers will continue to rely on such form of public transport day in day out. Together with the seemingly ever rising COE prices, it's unlikely that people will start to boycott cab rides and start buying their own vehicles. With a consistent history of dividend payout and a dividend yield of around 3.5%, personally I would say this stock would be a relatively safe investment. Even if the share price stays stagnant, the payout will still easily beat CPF OA and bank FD rates.

Food for thought. But it's very important to always DYODD before making any investment decisions, instead of following blindly based on others' recommendations. Because I'm human and I do make mistakes too.

Have fun investing. [Sly]