Description

Taiwan Taxi: an asset-light Taxi Fleet with Payment Processing and Advertising Potential

Summary:

Taiwan Taxi (台灣大車隊or “55688” to locals www.taiwantaxi.com.tw) is the dominant asset-light taxi fleet operator in Taiwan with over 22,000 taxis, over 3 million active smartphone app users, over 4 million registered members, and over 6 million monthly rides (10 million monthly passengers).  The company is quietly earning much more profit from non-cash payment processing and billboard-like advertising, high-margin profit streams that don’t require additional capital investment.  We believe Taiwan Taxi could show meaningful profit growth over the next few years by A) continuing to charge a 3% transaction fee on a rapidly growing base of non-cash taxi fare payments (i.e. from Visa/Mastercard, Apple Pay, Alipay, LINE Pay, etc.), B) getting more of its taxis to carry interior/exterior advertising, and C) reducing start-up losses from a Goodyear Tire maintenance chain store business that has masked core profitability. 

Though Uber Taiwan has retreated, the threat to Taiwan Taxi from newer ride-hailing competitors (i.e. LINE Taxi) should be mitigated by the fact that there’s still a lot of market share to take from the island’s large base of uncompetitive individual taxi drivers.[1] This is especially true in the post-COVID era.[2]  

From the average taxi passenger’s perspective, there’s no incentive to choose to ride with most individual taxi drivers because they A) provide atrocious customer service (i.e. many still chew betelnuts or watch TV while driving), B) have no ability to take dispatch bookings, and C) have no ability to accept non-cash payments of any kind.  Likewise, from the average taxi-driver’s perspective, there’s no financial incentive to stay independent because government transportation data already conclusively demonstrates that individual taxi drivers earn, on average, ~20% less revenue than those who drive for dispatch fleets like Taiwan Taxi.

Taiwan Taxi’s current stock price of NT$78.00 implies a market capitalization of NT$4.2 billion, or a 2019 P/E of 15x (or 12x P/E excluding one-off losses from a non-core subsidiary) and a dividend yield of 4.7%.  Excluding a large (8,233 ping or 27,216 square meters), vacant area of land the company owns in New Taipei City worth no less than NT$417 million (according to CBRE), the P/E on 2019 after-tax earnings without one-off losses falls to about 10x.

The research for this write-up included multiple phone calls, a face-to-face meeting, as well as dozens of “secret shopper” surveys of Taiwanese taxi drivers.  Insiders have increased their shareholding in the company as recently as January 2020, and if the earlier history of a similar business in Australia (A2B, a.k.a. Cabcharge) is any guide, if there’s no catastrophic regulatory interference down the road (a big “if”) then this type of company can trade at 20-30x P/E multiples with stable/growing profits for an extended period.[3]  

We don’t know if Taiwan Taxi will ever re-rate to 20-30x, but we do believe that the current core P/E of ~10x is too cheap given the fact that tens of thousands of unsophisticated individual taxi drivers still exist and, barring any major regulatory changes, will likely continue to cede market share to larger players like Taiwan Taxi in the long-run.[4]

What is the history of Taiwan Taxi? How did the company become the industry-leader by a big margin? 

The Chairman and major shareholder of Taiwan Taxi, Mr. Lin Cun-Tian (林村田), is not the company’s founder but actually an opportunistic investor-operator who bought into the company after the first two owners failed.  Lin was raised in rural Taixi (台西), part of Yunlin County (雲林), before entering mandatory military service.[5]  After the military, Lin founded his first company (Arcoa 全虹) in 1981 at age 23 and built it into a well-known telecom equipment retailer that he later sold to Far EasTone Telecommunications in February 2005.[6]  That same year, Lin used the Arcoa disposal proceeds to acquire control of Taiwan Taxi, a money-loser with a fleet size of under 2,000 taxis but connected by a uniquely scalable GPS dispatch system copied from Singapore’s leading taxi company. [7]  From 2006 onwards, the company has been profitable every single year and revenue has increased more than ten-fold while sustaining double-digit pre-tax profit margins. 

Above: Lin Cun-Tian (林村田), the Chairman and major shareholder of Taiwan Taxi. https://www.gvm.com.tw/article/69101