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SBS Transit and ComfortDelgro.

Tuesday, May 17, 2022

Towards the end of April, I revealed that I added SBS Transit to my portfolio and I also added to my investment in ComfortDelgro.

I said I would talk a bit more about these in my next quarterly report.

I was just being a lazy fellow, as usual.

Well, I decided that I should talk about it sooner than later because I am a nice person too. ;)

I should not leave a story half told (for too long.)

So, why did I do what I did?




SBS Transit is, of course, mostly owned by ComfortDelgro and in the business of public transportation minus the taxis (and airplanes.)

As I expect ComfortDelgro to do better post pandemic, all else being equal, a major contributor to this improvement should come from SBS Transit as ridership numbers on buses and trains improve.

So, becoming a shareholder of SBS Transit while its stock price languishes at close to pandemic level seems like a fairly good idea.

Fundamentally, SBS Transit is a profitable business with a relatively strong balance sheet too.

Then, if we look at EV/EBITDA, like ComfortDelgro's, SBS Transit's valuation is relatively cheap.




Having said this, I am not going to build a large position in SBS Transit as I already have a relatively large investment in ComfortDelgro.

I am more interested in increasing my investment in ComfortDelgro and I did so again earlier this month when the price of its common stock dipped below $1.40 a share. 

I thought Mr. Market was offering me a bargain given ComfortDelgro's improving prospects.

Although the pandemic revealed a major weakness in the business of public transportation and not being overly optimistic about the improving situation is probably a good idea, neither should we be overly pessimistic.

This is especially the case as we learn to live with COVID-19.




ComfortDelgro, unlike SIA or GRAB, has a relatively strong balance sheet.

ComfortDelgro is also profitable and not burning cash like SIA or GRAB.

What about dividends?

Ahem.

If we compare the free cash flow generating abilities of ComfortDelgro, SIA and GRAB, it is very clear which one is the winner.

Dividends from my investment in SBS Transit should be enough to pay for my mobile phone's subscription every year and still leave enough money to buy a few dozen bars of dark chocolate.

ComfortDelgro should better reward shareholders as earnings improve and with my larger investment, I would be a happy beneficiary in this case.

Of course, remember, this is just mental AK talking to himself again.

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10 comments:

Daniel Yip said...

And don't forget about EV charging station project, CDG won this and it might be profitable from this ah gong's project

AK71 said...

Hi Daniel,

Oh, yes, there is that too.

Another stream of income.

Hope they scale up quickly and dominate the space. ;)

EX said...

Hi AK, just curious at what price did you buy the SBS Transit back then?

AK71 said...

Hi EX,

SBS Transit's share price hardly moves.

So, it was about the same as what it is now probably.

KC said...

Dear AK,

What is the rationale for holding both SBS and CDG since SBS is mostly owned by CDG?

Thanks in advance!

AK71 said...

Hi KC,

I got stricken with Pokemonitis!

Gotta catch 'em all!

It is usually quite hard to buy SBS Transit shares at a price and quantity that make sense for me.

I just happened to stumble on an opportunity and decided to buy that day.

Like you said, it wasn't something that I had to do. :)

garudadri said...

Dear AK
Good punt
I am significantly under water with CDG but decided to not average down as I am able to get better returns from a combination of banks and maybe REITS
However, on the capital appreciation front, the banks sounds a better bet to me
I agree that CDG might reach at least 2$ if not get back to its heydays when it traded closer to 3$
When I did a back of the envelope quick math on total expected shareholder returns at a target price of 2$, The ranking emerged as below for a potential 3 year time frame
- Banks
- CDG
- Good REIT like May be Ascendas or Fraser LCT/ MIT etc
However, a recession will reverse this upside down and any slowdown will impact CDG as well
So, decided to go with a 2:1 weighted allocation for the Singapore banks vs REITS
Time will tell
Regards
Garudadri

AK71 said...

Hi garudadri,

Sounds like a good plan to me. :)

My portfolio is heavy in REITs and banking stocks.

So, I have some leeway to add to my investment in ComfortDelgro.

Hope that my strategy at diversification won't turn into "diworsification." ;p

David said...

Thanks, AK.
I queued at got a bit of SBS Transit @$2.82.
Not sure why.
Overall, Covid threat is slowing fading away.
More people are taking public transport & taxi.
But Comfort Delgo, SBS Transit are trending down.
Maybe due to high oil price, maybe CD Australia & UK operation are not earning much etc.
Previously, i got a bit of Vicom & some CD.
Will treat Vicom as a 'bond'.
Hope CD stabilise ~$1.38 to $1.4

Still no gut to buy SIA.
After got burnt before Covid..
SATS looks more attractive now.

David

AK71 said...

Hi David,

From a balance sheet and cash flow perspective, SBS and ComfortDelgro are stronger than SIA.

As long as we know why we are investing the way we are investing, it is enough.

There is no accounting for Mr. Market's many moods.

Well, we can try but I don't want to because I don't want to see my psychiatrist again. ;p


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