ComfortDelgro – CIMB

Enlarging its China footprint

Acquisitions in China

Taxi company acquisition: CD announced that it has increased its 55%-owned subsidiary, Beijing Jin Jian Taxi Services Co. Ltd in China has acquired a 100% stake in Jia Run Taxi Co. Ltd, a taxi operator in Beijing which owns 342 taxi licences and vehicles. This will increased CD’s Beijing taxi fleet to 5,421 vehicles and total fleet in China to 13,000 vehicles. The purchase consideration is Rmb76m (S$16.2m), based on the net asset value of the company. The acquisition will be financed by bank borrowings.

Increased shareholding in Chongqing driving school. CD also increased its stake from 80% to 90% in Chongqing ComfortDelgro Driving Training Co. Ltd. This is Chongqing’s largest driver training school offering driving lessons for various classes of vehicles. It has a fleet of 110 vehicles catering to an annual student enrolment of about 10,000. The purchase consideration of the additional 10% stake is Rmb6.4m (S$1.36m), based on the net asset value of the company and will be funded internally. So far, CD has invested Rmb57.6m (S$12.3m) in this venture.

Comments

Positive investments.
We see both investments as positive as we had earlier alluded to a growing number of reasonably-priced M&A opportunities amid an uncertain economic environment. While these investments are small by themselves, they are an incremental increase in terms of an expanding China footprint. In addition, both investments were based on the net asset values with no premium attached, which is by far, the cheapest investments made by CD in the last two years that saw soaring valuations.

Targeting 70% mix of overseas revenue. CD has set itself a target of 70% mix of overseas revenue within the next 5-7 years. Undeniably, there will likely be more M&A projects undertaken by CD as organic growth will only be able to contribute incrementally. As at 30 Sep 08, CD has net cash of S$82m and notwithstanding the current difficult credit situation, it is well positioned to gear up should large and attractive opportunities emerge.

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