Nanyang Polytechnic

–
School of Business Management

Capital Markets & Financial Instruments | BM0053

Year 2008/2009
Semester 1

Submission Date: 11 July 2008

Submitted to: Ms Chee Li Lian

Table of Contents

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

1. Introduction ................................................................................................................... 4
2. Management’s 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

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

Executive Summary
This project paper deals with a company’s 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.

ICA 2 | Capital Markets and Financial Instruments | Project Group No.5 3

1. Introduction
According to the Singapore Ministry of Manpower (MOM), Service sector’s contributions to
Singapore’s 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. Management’s Discussion and Analysis of Financial Condition

The 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 International’s 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 InterContinental
Resorts & 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 people
travelling 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 International’s 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 Strengths
Our 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
ICA 2 | Capital Markets and Financial Instruments | Project Group No.5 4
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, Singapore’s 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

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

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 Licensing
TransQ International is licensed by all country’s 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 Expansion
The 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
Genting’s management of Singapore’s 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.

ICA 2 | Capital Markets and Financial Instruments | Project Group No.5 6

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, that’s 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
local enterprises. Hence, we expect additional establishment of our company’s name as well
as 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 International’s 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 price No. Of shares Earnings per

P/E ratio
at IPO (in S$) outstanding share
ComfortDelGro
0.76 2,085,314,000 0.1073 7.08
Group
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 company’s 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

ICA 2 | Capital Markets and Financial Instruments | Project Group No.5 7

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
International’s 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 Singapore’s 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 shares

Transportation services’ beta is 1.05 according to Reuters® News Agency. Consequently,
TransQ International’s 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 sector’s 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

ICA 2 | Capital Markets and Financial Instruments | Project Group No.5 8

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 shareholder’s
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 International’s market value.

8. Conclusion
Having 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.

ICA 2 | Capital Markets and Financial Instruments | Project Group No.5 9

9. Appendices

9.1 TransQ International’s fields of business

Revenue in Estimated
Main Business
2007 (S$) Portion
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%
 9.2 Invitation Statistics (Table)

Price for each Invitation Share

The invitation share price is the result of multiplication from the transportation sector’s S$ 0.36
Price-Earnings ratio of 4.85 and TransQ International’s derived Earnings per share.
However, the actual price is subject to adjustments from the Board of Directors in order
to meet strategic goals.
Offer Price of public offer
S$ 0.40
TransQ International’s 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.
Net Tangible Asset Value per Share
S$ 0.60
Based on the historical balance sheet of the Group as at 31 December 2007 and the
share capital of 1,302,762,333 shares.(a)
Premium of Offering Price to Net Tangible Asset Value 66.67%
Based on the Net Tangible Asset value per share as at 31 December 2007.
Earnings per share(b)
S$ 0.075
Historical net earnings per Share of the Group for the year ended on 31 December
2007.
Price Earnings Ratio
5.34 times
Ratio of the Offering Price per Share to net earnings per Share for the year ended 31
December 2007.
Net Operating Cash Flow per Share(c) S$ 0.17
Historical net operating cash flow per Share for the year ended 31 December 2007.
Current Market Capitalisation
S$ 473,247,959
TransQ International’s market value of 1,302,762,333 outstanding shares times the
quantity of currently outstanding shares.
Additional Market Capitalisation through share issue
S$ 144,000,000
Quantity of 360,000,000 new offered shares times the offer price for public offer of
S$ 0.40.
Price to Net Operating Cash Flow
2.28 times
Comparison of TransQ International’s current market capitalisation to its level of annual
free cash flow.
Operating Cash Flow Ratio
90.4%
Shows the coverage of TransQ International’s current liabilities by the cash flow
generated from our company’s operations.
Debt-Equity Ratio
62.9%
Measure of TransQ International’s methods of financing or its ability to meet financial
obligations.
Return on Assets 7.6%
ROA is calculated by dividing TransQ International’s annual earnings by its total assets.
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 Group’s audited profit after taxation but before extraordinary items with
provision for depreciation and amortisation added back or deducted for the financial year.
9.3 Calculation of Invitation Statistics
Paste Excel sheet “Calculations”

9.4 Financial Statements of the top 3-most traded shares in the Transportation
Sector 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 International’s Consolidated Cash Flow Statement for the financial year
2007
9.7 Performance of the 3 most-traded shares in the Services Sector at SES

Source: http://www.sgx.com

Source: http://www.sgx.com
Source: http://www.sgx.com

9.8 Economic figures and newspaper articles related to TransQ International’s

business

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

Channel News Asia, “Genting and Star Cruises.” Channel News Asia, 17 October 2006,
<http://integratedresorts.com.sg/Genting_n_Star-Cruises.htm>, 23 June 2008

Chew, C.W., “Fact Sheet – Toursim sector performance for January – December 2007.”
Singapore Department of Statistics, 23 January 2008,
<http://app.stb.gov.sg/asp/new/new03a.asp?id=8123>, 17 June 2008

ComfortDelgro Group, “Annual Report for the year 2007”,

<http://www.comfortdelgro.com.sg/financial/annual_report.htm>, 19 June 2008

Corporate Information, “Genting International.”

<http://www.corporateinformation.com/Company-Snapshot.aspx?cusip=C702YLA00>,
22 June 2008

Heng, O.L., “Economic Surveys Series - Transport and Storage Services.” Singapore
Department of Statistics, 7 May 2008,
<http://www.singstat.gov.sg/pubn/business/esstrans2006.pdf>, 25 June 2008

Lim, M., “S'pore team on learning trip to IOC; Delegation's three-day visit includes meeting
key officers, discussing issues on 2010 Games”, 18 March 2008,
<http://www.lexisnexis.com/us/lnacademic/delivery/PrintWorking.do?fromCart=false&disb=0
_T4100661793&hideSource=false&estPage=2&delFmt=QDS_EF_HTML&docRange=Curre
nt+Document+%283%29&dnldFileName=S%27pore_team_on_learning_trip_to_IOC_Deleg
at&jobHandle=1862%3A101697804>, 6 July 2008

Lim, R., “Crazy bets on oil price raise eyebrows and alarm.” The Business Times, 4 July
2008

Ministry of Trade and Industry, “Growth Forecast for 2008 maintained at 4.0 to 6.0%.” press
release from 23 May 2008, <http://www.singstat.gov.sg/news/news/gdp1q2008.pdf>, 24
June 2008

Ministry of Trade and Industry,“Developing Industry – Integrated Resorts“,

<http://app.mti.gov.sg/default.asp?id=585>, 23 June 2008

Ministry of Trade and Industry,“Developing Industry – Investments and Tourism “,

<http://app.mti.gov.sg/default.asp?id=605>, 26 June 2008

Qing, K.G., “Genting secures $3 billion loans for Singapore casino.” Reuters press release
from 10 February 2008, <http://www.reuters.com/article/ousiv/idUSSIN3515320080211>, 17
June 2008

Reuters News Agency, “Ratios of Transportation Sector.” Reuters News Agency, 28 June
2008, <http://www.reuters.com/finance/stocks/ratios?symbol=CMDG.SI>, 28 June 2008

SBS Transit, “Annual Report for the year 2007”,

<http://www.sbstransit.com.sg/download/SBST_AnnualReport07.pdf>, 17 June 2008
Singapore Department of Statistics, “Economic Indicators.” Statistics Singapore. 20 March
2008 <http://www.singstat.gov.sg/stats/charts/econ.html>, 17 June 2008

Singaporedice, Casino Marina Bay Sands,

<http://www.singaporedice.com/marinabaysands.php>, 23 June 2008

Singapore Tourism Board, “Resorts World at Sentosa by Genting International and Star
Cruises”,
<http://app.stb.gov.sg/Data/news/1/3ba9af181751761d3b387f74ded2d783/Factsheet%20-
%20Resorts%20World.doc>, 22 June 2008

Singapore Tourism Board, “Tourism Sector Performance for May 2008“,

<http://app.stb.gov.sg/Data/news/3/6c752cebb3e95bbb82cb59c3e19a27bf/stb%20monthly
%20factsheet%20may%2008.doc>, 4 July 2008

Singapore Mass Rapid Transportation, “Annual Report for the year 2007”,
<http://www.smrt.com.sg/investors/documents/annual_reports/2007/index.htm>, 16 June
2008

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

The Business Times, “China Jingye to build Universal Studios S’pore”, p.7, 8 July 2008

ICA 2 | Capital Markets and Financial Instruments | Project Group No.5 16