ComfortDelgro – DBSV

No surprise that SBS Transit won the DTL MRT tender

Award of the Downtown line

Award of DTL to SBS Transit. It was announced that ComfortDelGro’s subsidiary, SBSTransit, has been awarded the licence to operate the Downtown MRT line. The line is the 5th MRT line and will be 40km long.

Details of DTL. The DTL will be the 5th line of Singapore’s MRT network. This line will have a total of 34 stations, and will connect the north-western and eastern parts of Singapore to the central business district. The contract is on a 19 year lease, and it will also entail 14,000 sq m GFA of retail space. This line will be fully underground, driverless (as per North-East line, currently operated by SBST, and Circle Line operated by SMRT), and will be opened in 3 stages – 2013, 2015, and 2017.

According to the terms of licence, SBST will pay the LTA (Land Transport Authority) a licence fee amounting to S$1.6bn over the 19-year term of the operating lease. The licensing fee will entail a fixed and variable component. LTA will retain ownership of operating assets and infrastructure, while SBST will take care of operations, maintenance and insurance. Average daily ridership is expected to be in excess of 700,000 when it is fully operational.

No surprise to us, no change in forecasts for now. In our view, the award does not come as a surprise to us as we have earlier deduced that SBS Transit stood in good steed to clinch this contract. Given that DTL stage 1 is only expected to be operational in 2013, we do not envisage any major impact on our forecasts for now. However, we do note that there could be a gestation period, leading to initial start up losses, from the time DTL1 is operational till the other 2 later stages are operational, expected in 2015 and 2017.

CD still the preferred land transport counter. We continue to prefer CD over SMRT for it’s cheaper valuation and diversified geographical exposure of its business. With the award of this contract, this helps to increase its market share of the rail network, which we see as the key mode of public transport which will enjoy stronger growth vis-avis buses. The award will boost long term growth but could dampen earnings growth when the line is operational in 2013.

Bloomberg: CD SP | Reuters: CMDG.SI

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