Transport – DBS

Fare cuts

PTC announced a fare reduction of 4.6%. This is inclusive of a 2cents fare rebate and a 10cents increase in transfer rebate. We were hoping for a 2-3% cut instead. The total cost to transport operators is $80m, of which savings from the Budget measures will cover $37m. We trimmed our profit forecasts by 2% – 6%. Our TP for SMRT is now $1.70. Downgrade to Hold on limited upside.

Overall fare reduced by 4.6%. The Public Transport Council (PTC) announced yesterday that there would be an overall bus and train fares reduction of 4.6% from 1 April 2009. The fare reduction comprises of a fare rebate of 2cents per trip and a 10cents in transfer rebates.

Total costs to operators is $80m. The fare reduction will costs the public transport operators about $80m over a period of 15 months from 1 Apr 09 to 30 Jun 2010. The 2cents fare rebate amounts to $52m, of which about $37m are savings from the Government Budget 2009. The 10 cents increase in transfer rebates is estimated to cost operators $28m.

Trimming profit forecasts. We trimmed our forecasts for SMRT (FYE Mar 10) and ComfortDelGro (CDG) by 6% and 2%, respectively. The adjustment to SMRT is larger as it derives almost all its revenue from Singapore. CDG, on the other hand, derives c.57% of its profit outside of Singapore.

Downgrade SMRT to Hold. Our TP for SMRT is adjusted down to $1.70 (still pegged to 14x FY10F earnings), equating to a 6% upside. As such, we downgrade SMRT to Hold. Whilst we like SMRT for its defensive features, we would prefer to accumulate at a lower level (c.$1.40).

Maintain Buy for CDG. We maintain our Buy call for CD for its international exposure and relatively limited impact from this round of fare cuts. Our TP for CDG is trimmed slightly down to $1.55 (from $1.57).

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