Is Trans-cab Poised To Become A High-Flying Winner?

The much awaited initial public offering (IPO) of Trans-cab Holdings Ltd. will be closed tomorrow at 12 noon. For those looking at the company, could it be a high-flyer that investors seek?

Things to be excited about

Trans-cab started operations in January 2004 with only 50 taxis. In 12 short years, the company had grown from next-to-nothing to become the second largest taxi operator in Singapore, even coming ahead of the taxi operations of SMRT Corporation Ltd (SGX: S53). Trans-cab’s Chairman and Chief Executive Officer, Mr. Teo Kiang Ang, is a serial entrepreneur who has successfully started and grown many businesses. Trans-cab’s track record and Mr. Teo’s pedigree seems to indicate the presence of management with strong ability.

The demand for public transportation in Singapore is still growing. With the new funds from its IPO, Trans-cab would now have the capital to expand into other areas of the public transport business. One such area deals with the recent initiative by the Land Transport Authority to liberalise the public bus transport system in Singapore. Trans-cab had pointed out in its prospectus that it might be putting up a bid to run public bus services in the future.

Trans-cab is also exploring the potential of the vehicle leasing business. As the cost of owning a car in Singapore rises, the attractiveness of leasing a vehicle here would likely increase. Furthermore, with the increased popularity of mobile apps like Uber, which mainly work with vehicle leasing companies, this might be a potential fast growing sector within the transport industry which Trans-cab can tap into.

Things to be less excited about

But, it’s not just a bed of roses for Trans-cab here. According to an interview with The Edge Singapore, Mr. Teo will be selling 25 million of his own shares in the company in the listing. It’s certainly fair for a founder to want to cash out part of his holdings of his company at some point in time in the name of prudent diversification. But the flip side is that management may think it’s a good time to cash out now because they view the business as having reached a mature stage of its growth.

Trans-cab’s also operating in an industry which is highly regulated. Each taxi operator would have to comply with the requirements of the LTA. For example, taxi operators are required to have at least 80% of their fleet be active during peak hours and 80% of their drivers must clock a minimum driving distance of 250km per day. And even when the operators are able to meet the aforementioned requirements, they are also only allowed to expand their vehicle fleet by a maximum of 2% per year. This might hinder the growth rate of Trans-cab’s taxi operations.

Foolish Summary

There are certainly things to like about Trans-cab’s business, just as there are issues to be wary about. Investors would thus have to weigh the risks and rewards when they assess the attractiveness of Trans-cab as an investment opportunity.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim does not own shares in the companies mention above