Trans-Cab IPO

Well done Trans-Cab! (or should I say DBS?) Certainly an opportune time to launch this IPO in light of the developments surrounding Singapore Land Transport. The asset-light strategy proposed by the government for the rail and bus businesses is an obvious sign that the government deems intervention critical in Public-Private Partnership success.

But does this guarantee a success for punters / investors? Let’s break it down.

Business model

• Core business is the operation of taxi services – acquire and rent out taxis to licensed drivers (the market loves this kind of easy to understand business models) 
• Operator license granted by the LTA – subject to renewal and government policy (high chance this wouldn’t pose a problem in light of numerous complaints on taxi shortage) 
• 2 recurring income streams – Taxi rental and engineering services (a no-brainer in recurring cashflow) 
• Strong competition from other players (service Trans-Cab renders pales in comparison to that of Comfort and SMRT – 2nd tier booking / app system, cash-only policy practiced by most drivers despite possessing a card system) 
• Concentrated business - 100% of revenue is derived from Singapore; this is unlike c.42% of Comfort's revenue coming from abroad

Financials

• Based on historical financials provided in the prospectus, revenue is growing at a healthy consistent rate of c.7% 
• Margins from Trans-Cab are impressive – GPM c.30% and NIM c.22% - Comfort’s NIM is only c.7% (this is due to the less profitable bus business) 
• Slightly concerned over the minuscule cash pool when compared to other transport players in Singapore 
• However, the term loan, revolver, proceeds from offering should enable them to tide over working capital challenges in the coming year 
• Dividend policy - no fixed policy, offering at least 15% of PAT for FY2014 distribution and 60% of PAT for FY2015. Assuming EPS of 6 cents (annualized adj EPS), applying a 60% dividend payout, the yield is roughly c.5.2% (pretty decent compared to c.3% Comfort gives out) 

Use of proceeds

• Expansion of taxi operations – S$30m 
• Diversification into other transport businesses – S$30m (tendering for bus project?) 
• Investment in technology and innovation – S$4m 
• Construction and refurbishment of new corporate headquarters – S$3m (seriously?) 
• Working Capital – S$30.8m (absolutely needed) 

Valuation

• Trans-Cab Post IPO P/E – 13.9x (FY2013) and 12.3x (FY2014E) 
• Peers forward FY2014E P/E trading at significantly higher multiples (EPS adjusted based on personal discretion): 
• Comfort – 19.8x 
• SBS Transit – 33.5x 
• SMRT – 27.4x 
• Blue Bird, largest Taxi company in Indo – 19.4x 
• Express Transindo, 2nd largest Taxi company in Indo – 16.8x 
• When bench-marked against its peers on a forward basis, Trans-Cab is quite a steal! Nevertheless, value is indeed subjective. Extensiveness of SMRT's and Comfort's business significantly surpasses the company in focus. 

Cornerstone Investors

• Surprisingly high quality cornerstone investors - Eastspring, FIL, Havenport, JF, LionGlobal, Maxi-Harvest 
• Eastspring, JF and LionGlobal are indeed great names to have on the shareholder register (perhaps attracted to the yield / transport play) 
• Kudos to Trans-Cab (or should I say DBS again?) 

Offering

• 168m shares on offer (65m cornerstone, 94m placement, 8.8m retail) 
• Greenshoe of 20m shares (recall the previous post, Greenshoe Option: A banker's best friend) 
• Ridiculously small public tranche – c.s$6m from this portion. Good luck in getting allocated 
• Only 1 local bookrunner engaged to run this offering? (C’mon... International banks are exactly what Trans-Cab needs to glam the offering up and appeal to international funds!) 
• Priced at top of the range S$0.68 implying strong demand – (Salute!) 

Mr Greenshoe’s thoughts

• Markets slightly volatile but great time to launch on the back of favorable government policies 
• ComfortDelGro is a market darling and Trans-Cab can ride on the positive transport wave in Singapore’s stock market 
• Valuation from a comps basis very attractive 
• High quality investors, priced at top of the range, logical use of proceeds – key ingredients for a good IPO 
• Heartening rags to riches story from Management (not sure how investors will perceive this) 
• Like the fact that the Teo family owns c.72% post-listing 
• Recent listing of Blue Bird on the Indonesia Stock Exchange soared c.14.6% on listing day 
• Just a trivia and certainly not a guarantee, Mr Greenshoe has downloaded all the IPO’s DBS led / co-led since 2013 to see how price changes on debut. Pretty neat! 

Public offer closes on 18th November 2014

You are very welcome

GS