concept and analysis for a transportation company in south east asia

8/14/2019 Concept and Analysis for a Transportation Company in South East Asia

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Nanyang Polytechnic

School of Business Management

Capital Markets & Financial Instruments | BM0053

Year 2008/2009Semester 1

Submission Date: 11 July 2008

Submitted to: Ms Chee Li Lian


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ICA 2 | Capital Markets and Financial Instruments | Project Group No.5 2

Table of Contents

Executive Summary............................................................................................................. 3

1. Introduction................................................................................................................... 4

2. Managements Discussion and Analysis of Financial Condition ............................. 4

2.1 Overview ................................................................................................................. 4

2.2 Strengths ................................................................................................................. 4

2.3 Factors affecting our results of operations and financial condition .......................... 5

2.3.1 Regulation ........................................................................................................ 5

2.3.2 Economic risks ................................................................................................. 5

2.3.3 Competition ...................................................................................................... 5

2.3.4 Licensing .......................................................................................................... 6

2.3.5 Advertising ........................................................................................................ 6

3. Results of Operation .................................................................................................... 6

4. Substantiate Future Plans ........................................................................................... 6

4.1 Business Expansion ................................................................................................ 6

4.2 Further Investments ................................................................................................. 7

4.3 Restructure .............................................................................................................. 7

5. Logical Share Selling Price.......................................................................................... 7

6. Invitation Statistics....................................................................................................... 8

7. Final Sales Pitch ........................................................................................................... 8

7.1 Economic outlook for hotel, leisure and transportation sector ................................. 8

7.2 Future increase in share price due to IR .................................................................. 8

7.3 Less volatility with TransQ International shares....................................................... 8

7.4 Special rights for Investors ...................................................................................... 8

7.5 Well established reputation ..................................................................................... 9

7.6 Privileges for investors ............................................................................................ 9

7.7 Convincing financial condition ................................................................................. 9

8. Conclusion .................................................................................................................... 9

9. Appendices

10. References


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Executive Summary

This project paper deals with a companys plan to place out shares to investors in order to

realise further investments for a future growth. In the course of fundamental research on the

service industry in Singapore and economic outlooks for the South East Asian countries, our

project group extended its knowledge on analysis of financial figures as well as developing

realistic business strategies. By acting as directors of a fictional company, we discussed

about a business strategy with high future growth potential in order to attract investors for

our shares. Please take into account that all numbers and figures used in this project paper

are mainly derived and calculated from benchmarking with other leading firms financial

statements in this industry.


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1. Introduction

According to the Singapore Ministry of Manpower (MOM), Service sectors contributions to

Singapores nominal GDP and total employment were 63.5 percent and 68.4 percent in

2007 respectively. Hence, the service sector and manufacturing sector are the twin engines

of growth for the Singapore economy. As the services sector is diverse, we identified the

three most traded companies whose main activities are classified into public or private

people carriage services. In order to deal with realistic and appropriate circumstances for

this industry sector, we decided to found a business involving both travel and transportation.

In the course of this decision, we assumed the business being already active for several

years.

2. Managements Discussion and Analysis of Financial ConditionThe following discussion of our financial condition and results of operations is based upon

and should be read in conjunction with our consolidated financial statements and the related

notes included in the appendix of this project paper.

2.1 Overview

TransQ Internationals core business is to act as an independent and executive guest

carriage provider for hotel and casino operator Genting Corporation. We also proudly

cooperate with several prestigious hotel chains like Four Seasons

and InterContinentalResorts & Hotels. Additionally, we generate revenue from the businesses of car rental and

leasing services, automotive engineering, maintenance services and diesel sales, vehicle

inspection services, insurance broking services and outdoor advertising. Founded in 2000,

our core business is to provide our guests integrated transport services by offering a safe,

reliable and friendly travel experience on our network in Singapore, Malaysia and Thailand.

We established an extraordinary position in the industrial sector of travel and transportation

as we offer customized transportation services on mainly tourists and business peopletravelling through the South East Asian countries we are operating in. Our fleet, mainly

consisting of cars and multi purpose vehicles, is maintained in association with BMW and

Mercedes of Singapore in order to provide our high qualitative aspirations. According to our

environmental commitment, all of TransQ Internationals vehicles are prosecuted with

hydrogen engines. As at 30 December 2007, we managed a fleet size of 1,973 cars

employing 2,589 staff.

2.2 StrengthsOur corporate culture as a personal carriage company is based on the principles of

reliability, safety and excellent customer service, which we have practised successfully over


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the last 8 years. Our dedicated and experienced work force, with more than 65 percent

speaking at least two languages is trained regularly for providing the customers knowledge

of the destinations through our network of employee development centres. Experienced

employees are critical to the success of our operations. TransQ International is committed to

provide its employees with developmental opportunities, remuneration and service

conditions. Customized transportation services bring along continuously changing

requirements and TransQ International aspires to meet them any time. For instance, we

provide carriage across borders. Diversification is reached through the charge of only

standardized rates and excluded peak period rates. We charge by credit, thus our guests do

not have to pay directly and all the payments are handled by the hotels. Our incomes are

generated from the hotels which will mostly charge the tourists on the carriage by including

the transfer costs in their accommodation costs.

2.3 Factors affecting our results of operations and financial condition

2.3.1 Regulation

The processes of obtaining regulatory approvals to market a transportation service in the

South East Asian countries are subject to complex regulatory requirements as they can be

costly and time-consuming. There is no assurance that such approvals will be granted on a

timely basis, if at all.

2.3.2 Economic risks

The massive increase in oil prices affects many businesses worldwide. Since we are mainly

operating with alternative energy sources like hydrogen for our environmentally-friendly

vehicles we are not directly exposed to this risk. This does not only attract our guests, but

also leads to financial savings in the long term and enables us to concentrate our economic

challenges otherwise. Acting internationally brings along exchange rate risk. The weakening

US Dollar exchange rate affects our revenues in Thailand and Malaysia since these

currencies are subject to a managed floating rate approach. Hence, they are relatively

connected to the American currency.

2.3.3 Competition

Our main competitor is ComfortDelGro, Singapores largest taxi operator with a fleet of over

10,000 taxis of which approximately 1,500 being limousine vehicles. In 2007, they catered to

a 20 million bookings in one year. Additionally, we compete with many comparably small

businesses in connection with our services and face competition from numerous unlicensed

transporting companies, mainly in Malaysia and Thailand. We are in the fortunate position to

have a guaranteed level of continuous guest transportations due to our cooperation with the


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hotel chains. As we are offering customized carriage services mainly for tourists and

business people, we do not compete with the typical taxi companies, but rather focus on

specified destinations like hotel locations, airports or individual places of interest.

2.3.4 LicensingTransQ International is licensed by all countrys transportation authorities we are operating

in. In 2006, we received the Land Transport Excellence Award of Singapore for the most

customer-friendly transport provided. We are an ISO 9000:2000 and 13000 business

certified by the Productivity and Standards Board of Singapore and provide internationally

recognized and standardized services.

2.3.5 Advertising

In the years of operation we built up a good reputation among guests domestically and

internationally. Certainly, this is a dedication of our business associates in the hotel branch.

To further establish our reputation, we offer outdoor advertisements on our vehicles for

selected companies whose guests or employees we are also carrying. This strategy will

increase our revenue and guarantees customer retention.

3. Results of operation

In 2007, TransQ International could generate revenue of S$ 677,692,000, a 13.6 percent

increase compared to 2006. Especially through providing advertisement space on our

vehicles as well as an increase in our car rental and leasing services brought additional

gains of S$ 24,484,000. Total operating expenses rose to S$ 575,670,000 by 16.9 percent,

with finance costs mainly caused by the enlargement and maintenance of our fleet.

Comprising, TransQ International experienced a record profit of S$ 97,551,000 in 2007 and

can gear up for an expansion of its services.

4. Substantiate Future Plans

4.1 Business ExpansionThe Integrated Resorts (IR) in Singapore are believed to attract 15 million visitors by 2010.

Therefore, we see a great potential in the travel and leisure industry. We are combining with

the market leaders in the Asian hotel industry to provide accessibility and customized

transportation services to the tourists, resulting in further generation of revenues for our

company. The current expansion of our executive corporate partner Genting International in

Asia and Europe entails growth opportunities for TransQ International, especially with

Gentings management of Singapores first casino complex on Sentosa Island. This will

bring TransQ International in the advantageous position to be its official guest carriage

provider. Thus, we have great potential to make use of the synergy effects.


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4.2 Further Investments

In order to meet our partners and customers expectations, an enlargement of our fleet is

required. We intend to invest a sum of S$ 69,250,000 into new vehicles, thats a 71 percent

stake on our gained profits of 2007. Additionally, the construction of a car park and a

maintenance centre are required due to the increased fleet. The estimated costs for this

investment are S$ 10,000,000. With regards to the first Youth Olympic Games taking place

in Singapore in 2010, TransQ International has come forward to express interest in offering

some kind of sponsorship. Concerning this matter, we will keep S$ 2,500,000 in reserve.

This event will attract worldwide publicity and the government supports sponsoring efforts of

localenterprises. Hence, we expect additional establishment of our companys name as wellas appropriate future receipts.

4.3 Restructure

The share issue will lead to an increased access to contacts and distribution channels as it

will call more hotels and interested parties attention to TransQ International. Despite

expansion plans we do not intend to undertake fundamental restructures. Nevertheless,

TransQ International is closely accompanied by considerable consulting firms which will

commence appropriate restructuring procedures if necessarily required.

5. Logical Share Selling Price

TransQ Internationals logical share selling price is derived from orientation on the three

most traded shares in the transportation sector. Please refer to Appendix 9.3 for detailed

calculations.

Company Share priceat IPO (in S$)

No. Of sharesoutstanding

Earnings pershare

P/E ratio

ComfortDelGroGroup

0.76 2,085,314,000 0.1073 7.08

SBS Transit 1.35 307,681,000 0.1637 8.25

SMRT 0.61 1,515,292,000 0.1228 4.97

TransQ International 0.40 1,302,762,333 0.0749 5.34

The initially calculated logical selling price for our share according to our financial results is

S$ 0.36. Our aim of this share placement is primarily not to maximize our profit, but rather to

increase our companys value on the market. Especially in the long run, we estimate that

this effect will be advantageous to enhance our international reputation. In order to reach the

target capital of S$ 90,000,000 that needs to be raised for investments we decided to sell


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360,000 lots of shares, one lot valued at S$ 400. Altogether, the share issue will generate

an additional expected market capitalisation of S$ 144,000,000.

6. Invitation Statistics

For specification and overview of above mentioned figures please refer to TransQ

Internationals invitation statistics in appendix 9.2.

7. Final Sales Pitch

7.1 Economic outlook for hotel, leisure and transportation sector

Benefiting from the record visitor arrivals, the hotel industry saw both the average room rate

and average occupancy rate setting new highs in 2007. Total room revenue was estimated

to reach an all-time high of S$1.8 billion, an increase of 22.8 percent over 2006 according to

the Singapore Department of Statistics. This rapid growth is expected to continue in the

following years. Travel and leisure industry in South East Asia grew by 6.2 percent in the

first quarter of 2008. Additionally, a 9.0 percent increase in the transportation sector also

underlines our aspirations of further growth.

7.2 Future increase in share price due to IR

Based on Singapore Tourism Board, 828,000 visitors have visited Singapore in May 2008

creating a new record for visitor arrivals with an increase of 12.1 percent compared to 2007.

IR will enhance Singapores reputation as a premium for leisure and business visitors and

ensure that the tourism sector will remain a key contributor to the economy. Hence, it is

expected to triple tourism receipts to S$ 30 billion and double visitor arrivals to 17 million

visitors by 2015. We expect our share price to increase tremendously due to massive hotel

industry growth. The flourishing tourism sector will benefit the hotel sector which we serve

as carriage providers. Especially the sales of shares upon IR completion have high potential

to raise profits for investors as we expect a boost of our share value.

7.3 Less volatility with TransQ International sharesTransportation services beta is 1.05 according to Reuters News Agency. Consequently,

TransQ Internationals likeliness to react sensitively on market changes is adequately small.

This makes our shares especially attractive for risk-adverse investors that still want to earn a

satisfactory return of shares.

7.4 Special rights for Investors

IR will have positive impacts on our revenue. The earnings per share and the sectors price-

earnings ratio will lead to an increase as a consequence of the emerging travel and

transportation economy. Currently, we do not offer dividend payments because mostly all


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our profits are reinvested to help sustain a higher-than-average growth. In the long term, we

plan to have the capability to introduce special rights like dividends for the investors.

7.5 Well established reputation

Operating for the past 8 years, we have built confidence among our partners in the service

industry. We see an opportunity to seize a bigger market size for our business through the

alliances with market leaders in the Asian hotel industry. Talks with our partners have taken

place to offer our executive services also across the Asian borders.

7.6 Privileges for investors

Investors will enjoy free carriage and discounted stays in selected hotels of our corporate

partners when buying 50 lots of shares at a value of S$ 20,000. At a purchase of 150 lots

worth S$ 60,000 shareholders are entitled to a free five-day cruise with our partner

StarCruises. Those special packages shall encourage investors to buy large amounts of

shares and additionally increase revenues of our corporate partners.

7.7 Convincing financial condition

Although being in the phase of investment and growth, TransQ International is aiming to

finance its assets through equity. With a debt-to-equity ratio of 62.9 percent we assert

ourselves above the industry average (see appendix 9.3). A share issue will lead to a further

decrease of our leverage ratio. Measuring the coverage of current liabilities by the

generated cash flow, TransQ International achieved an operating cash flow ratio of 90.4

percent. This underlines our liquidity in the short term and benefits our shareholders

financial assurance. The share emission will increase our market capitalisation by an

additional amount of S$ 144,000,000. Consequently, this effect will raise our current Price to

Net Operating Cash Flow Ratio by 30.3 percent from 2.28 to 2.97 towards the current

industry average of 3.64 and verifies TransQ Internationals market value.

8. ConclusionHaving successfully operated in a growing industry for the past years with good reputation, a

7.3 percent growth in revenue in the first quarter of 2008 due to several conventions and

exhibitions having taken place in Singapore supports our aspirations to expand. All

economic and microeconomic signs and indicators point to a continuation of growth and

TransQ International is well prepared for future challenges through its seminal business

strategy. Investment in TransQ International carries out in all aspects.


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9. Appendices

9.1 TransQ Internationals fields of business

Main Business Revenue in2007 (S$)

EstimatedPortion

Guest Carriage Services (Car Service) 280,870,400 40%Car insurances / Complementary products for cars 49,152,320 7%Rental / Leasing 105,326,400 15%Automobile Engineering 35,108,800 5%Maintenance Services and Diesel 7,723,936 11%Inspection 91,282,880 13%Outdoor Advertising 63,195,840 9%Total Contributions 702,176,000 100%


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9.2 Invitation Statistics (Table)

Price for each Invitation Share

The invitation share price is the result of multiplication from the transportation sectorsPrice-Earnings ratio of 4.85 and TransQ Internationals derived Earnings per share.

However, the actual price is subject to adjustments from the Board of Directors in orderto meet strategic goals.

S$ 0.36

Offer Price of public offer

TransQ Internationals Board of Directors set the offer price for shares at S$ 0.40, a 10%markup price to meet our target capital to be raised.

S$ 0.40

Net Tangible Asset Value per Share

Based on the historical balance sheet of the Group as at 31 December 2007 and theshare capital of 1,302,762,333 shares.(a)

S$ 0.60

Premium of Offering Price to Net Tangible Asset Value

Based on the Net Tangible Asset value per share as at 31 December 2007.

66.67%

Earnings per share( )

Historical net earnings per Share of the Group for the year ended on 31 December2007.

S$ 0.075

Price Earnings Ratio

Ratio of the Offering Price per Share to net earnings per Share for the year ended 31December 2007.

5.34 times

Net Operating Cash Flow per Share(c)

Historical net operating cash flow per Share for the year ended 31 December 2007.

S$ 0.17

Current Market Capitalisation

TransQ Internationals market value of 1,302,762,333 outstanding shares times thequantity of currently outstanding shares.

S$ 473,247,959

Additional Market Capitalisation through share issue

Quantity of 360,000,000 new offered shares times the offer price for public offer ofS$ 0.40.

S$ 144,000,000

Price to Net Operating Cash Flow

Comparison of TransQ Internationals current market capitalisation to its level of annualfree cash flow.

2.28 times

Operating Cash Flow Ratio

Shows the coverage of TransQ Internationals current liabilities by the cash flowgenerated from our companys operations.

90.4%

Debt-Equity Ratio

Measure of TransQ Internationals methods of financing or its ability to meet financialobligations.

62.9%

Return on Assets

ROA is calculated by dividing TransQ Internationals annual earnings by its total assets.

7.6%

Notes:

Upon completion of the Invitation, this statistic remains unchanged as the Invitation comprises existing Shares only.

(a) Net earnings are based on audited net profit after tax and minority interests, but before extraordinary items.

(b) Net operating cash flow is based on TransQ Groups audited profit after taxation but before extraordinary items withprovision for depreciation and amortisation added back or deducted for the financial year.


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9.3 Calculation of Invitation StatisticsPaste Excel sheet Calculations

9.4 Financial Statements of the top 3-most traded shares in the TransportationSector at SGX in 2007

Put in our summarized Excel Sheet + all 3 printed pdf.files and remove this paper

9.5 Balance Sheets of the top 3-most traded shares in the Transportation Sector

9.6 TransQ Internationals Consolidated Cash Flow Statement for the financial year2007


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9.7 Performance of the 3 most-traded shares in the Services Sector at SES

Source: http://www.sgx.com



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9.8 Economic figures and newspaper articles related to TransQ Internationals

business

Source: http://app.stb.gov.sg/Data/pages/12/b53b3a3d6ab90ce0268229151c9bde11/annual_rep_05.pdf


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10. References

Channel News Asia, Genting and Star Cruises. Channel News Asia, 17 October 2006,, 23 June 2008

Chew, C.W., Fact Sheet Toursim sector performance for January December 2007.Singapore Department of Statistics, 23 January 2008,, 17 June 2008

ComfortDelgro Group, Annual Report for the year 2007,, 19 June 2008

Corporate Information, Genting International.,22 June 2008

Heng, O.L., Economic Surveys Series - Transport and Storage Services. SingaporeDepartment of Statistics, 7 May 2008,, 25 June 2008

Lim, M., S'pore team on learning trip to IOC; Delegation's three-day visit includes meetingkey officers, discussing issues on 2010 Games, 18 March 2008,, 6 July 2008

Lim, R., Crazy bets on oil price raise eyebrows and alarm. The Business Times, 4 July2008

Ministry of Trade and Industry, Growth Forecast for 2008 maintained at 4.0 to 6.0%. pressrelease from 23 May 2008, , 24June 2008

Ministry of Trade and Industry,Developing Industry Integrated Resorts,, 23 June 2008

Ministry of Trade and Industry,Developing Industry Investments and Tourism ,, 26 June 2008

Qing, K.G., Genting secures $3 billion loans for Singapore casino. Reuters press releasefrom 10 February 2008, , 17June 2008

Reuters News Agency, Ratios of Transportation Sector. Reuters News Agency, 28 June2008, , 28 June 2008

SBS Transit, Annual Report for the year 2007,, 17 June 2008


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Singapore Department of Statistics, Economic Indicators. Statistics Singapore. 20 March2008 , 17 June 2008

Singaporedice, Casino Marina Bay Sands,, 23 June 2008

Singapore Tourism Board, Resorts World at Sentosa by Genting International and StarCruises,, 22 June 2008

Singapore Tourism Board, Tourism Sector Performance for May 2008,, 4 July 2008

Singapore Mass Rapid Transportation, Annual Report for the year 2007,

, 16 June2008

The Business Times, Asia-Pacific travel sector prospects under study, p.2, 9 July 2008

The Business Times, China Jingye to build Universal Studios Spore, p.7, 8 July 2008

concept and analysis for a transportation company in south east asia

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