Unfortunate Punching Bag

• The Edge’s timely “defense” of Saw Phaik Hwa (SMRT’s CEO) in its latest issue noted the following:

- The fare-setting Public Transport Council (PTC) has no representation from either SMRT or Comfort Delgro, which owns 75.25% of SBS Transit. Members come from the LTA, academia, labor unions, grassroots organizations, professional bodies and businesses.

- Fare hikes / adjustments are determined by a formula that takes into account inflation, national average earnings, less productivity gains.

- Operators may apply for fare hikes / adjustments once a year. (Between 2000 and 2007, there were 5 fare increases of a few cents each time. In 2008, a nominal 0.7% increase was granted, less than the 3% cap provided for; and in 2009, fares were actually reduced by 4.6% as the operators passed on savings from the 2009 Budget.)

- The recently implemented distance-fare scheme was an initiative of the LTA.

- The rail infrastructure was built and designed by the Land Transport Authority. The number of carriages, ie capacity of trains, would have been designed by LTA.

- The Downtown Line, due for completion from 2015, is “still” up for grabs. (*Yet, ask 100 train commuters, and 99 are likely to think SMRT is the sole operator of all MRT lines; North South, East West, North East and Circle Lines.)

- SMRT shares have returned 18.3% per annum since 2000.

• We have long maintained that the perennial question the authorities have to deal with is, is public transport a public service (offering subsidies is then entirely the government’s prerogative; fare hike may not be granted even if provided for by the formula) and then act accordingly: privatize SMRT and SBS Transit.

• The Edge noted that there are currently 10 “Hold” and 8 “Sell” recommendations by broking houses, with no one calling a “BUY”.

• We have however been calling a BUY, and are happy to keep it that way. Assuming 8.75 cents per share dividend for ye Mar’11, yield is a reasonably attractive 4.3%.

*All, except for North Ease Line operated by SMRT.