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ComfortDelgro's 51% stake in LCR good or bad?

Saturday, December 9, 2017

I was wondering whether to blog about this but still feeling rather lazy, I just made a few comments in my blog's comments section and on my Facebook wall.

OK, if you don't know about the proposed acquisition, read the article: HERE.

"Taxi giant ComfortDelGro announced on Friday (Dec 8) its intention to acquire a 51 per cent stake in the Uber-owned rental fleet business, Lion City Rentals."






As things turned out, I received an email from a reader on the matter and I decided to do a little bit of "work" to share it in my blog.

Bad AK! Bad AK!



Reader's email:

I like your reply to your reader Lee Jiahui that CDG's deal with Uber will "stem the loss of drivers" and this is already helping CDG.

I also like your reply to your reader Kevin that "car rental business is actually a good business and CDG is an old hand at fleet management and they should be able to do a better job of managing LCR's fleet and reap some benefits." 


I am also glad that CDG did not invest in Uber and I also believe that the CDG's proposed majority stake in LCR is not a bad idea.





I would like to share the following:


1. CDG is paying S$295 million for a 51% stake in LCR.


2. It involves only 12,450 cars out of LCR's fleet of about 14,000 cars.


3. The NAV of the 12,450 cars is about S$642 million.


4. If utilisation rate of the fleet goes up in future, CDG would pay for more cars in the fleet.







So, although it is true that CDG is paying for depreciating assets, they are only paying for productive depreciating assets.


This is nothing new. 


Taxis are depreciating assets too but if they are put to work, they are productive assets.

Hack, 99 years, 60 years, 30 years leasehold properties are all depreciating assets.

Should investors avoid them?








Like you always say,


"All investments are good investments at the right price."

If we understand this, understand that this deal with Uber would lead to an increase in earnings for CDG in their car leasing department.


Also, we should expect CDG's engineering department's earnings to benefit.

So, is this really a bad deal?

(End)







From the comments here in my blog and on my FB wall, it is clear that not everyone is convinced that this is a good deal for ComfortDelgro.

However, to expect a fantastic offer from Uber to give away something precious to ComfortDelgro on a silver platter would be unrealistic.

As an investor, I try not to be overly optimistic or overly pessimistic. 

I try to be pragmatic.













Realistically, we cannot predict what Mr. Market is going to do next week.

However, as investors for income, all we need to do is to determine what is a fair price to pay and wait for offers from Mr. Market.

We can do it for fun but we are not in the business of predicting price movements.


We are in the business of preparing to buy from Mr. Market when he is feeling depressed.





If you just popped by, this is one of those rare days with more than one blog published in ASSI.

Read the blog published earlier today: HERE.


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