Trans-cab (IPO)

Trans-cab: Per indicative time-table, registration should be today, and public offer should be tomorrow to 18 Nov. Taxi-operator, Trans-cab has lodged its preliminary prospectus for an IPO on the SGX Mainboard. The indicative pricing is $0.65-0.68 per share. The invitation for 168m shares comprises: - cornerstone tranche of 65m shares (38.7%), - placement tranche 94.2m shares (56.1%), and - public tranche 8.8m shares (5.2%). Key cornerstone investors include Eastspring Investments (I.e. Prudential's Asia asset management arm), Fidelity Investments and Havenport Asset Management. The gross proceeds of between $109m and $114m, will be used to expand Trans-cab’s taxi operations, and to fund its diversification into other transport businesses, as well as for investment in technology and innovation. Trans-cab operates the second largest taxi fleet in Singapore, with 4,686 cabs as at 30 Jun ’14, and is supported by ~7,400 drivers (including relief drivers). In addition, the group has two workshops to maintain, service and repair its taxis, a few diesel pump stations, and a booking call centre. Trans-cab prides itself for its ability to retain and attract taxi drivers. Its hire-out rate for taxis improved 3.2ppt to 98.6% at end FY13. More than half of Trans-cab’s taxi drivers (51%) have been with the group for at least three years. Management has also put in place incentive systems to align taxi-driver’s interests with that of both management and taxi-riders. These include performance, accident free, and loyalty incentives. Trans-cab seeks to drive economies of scale and beef up operating margins through the renewal of its fleet. Commencing in 2012, the taxi operator has expanded and replaced its fleet. The new models enjoy an upward rental reversion. With an expanded fleet, Trans-cab will be able to enhance its operational scale and be more cost efficient. The taxi industry outlook is also favorable with stronger support for a growth in taxi spend in the local market, driven by growing population, rising income levels, a buoyant tourism sector and an expensive cost of private vehicle ownership. For 1H14, net profit from continuing operations rose 21.1% y/y to $19.9m, on the back of revenue of $90.8m (+7.6%), driven by improved gross margin of 30.4% (+5ppt) on the back of improved efficiency. Management intends to payout 15% of FY14 net profits, and expects FY15 payout ratio to be above 60%. Assuming a no growth scenario from FY13's net profit of $36.5m, at $0.68/share, a 15% payout ratio would translate to 0.82¢ DPS (1.2% yield), while a 60% payout translates to a 3.3¢ DPS with a yield of 4.8%. Indicatively, Trans-cab is priced at 8.3x-8.7x annualized 1H14 P/E, relative to its larger and more diversified transport peers, ComfortDelgro and SMRT of 16.2x P/E and 24.8x P/E respectively. Note that ComfortDelgro derives 23.5% of revenue from its Singapore taxi operations, while taxi contribution for SMRT is 11%. DBS is the issue manager, book runner and underwriter for the offering. Indicative timetable: Lodgment: 4 Nov'14 Bookbuilding period: 5 to 11 Nov'14 Roadshow (Singapore): 5 to 11 Nov'14 Registration: 12 Nov'14 Singapore Public Offer: 13 to 18 Nov'14 Expected Listing: 20 Nov'14