Land Transport – Phillip

Some help in funding bus capex

Sector Overview

The Transportation Sector under our coverage consists of Airlines (SIA, Tiger Airways), Shipping (NOL), Land Transport (SMRT, ComfortDelGro) & Aviation Services (SIA Engineering, ST Engineering, SATS).

Government initiative to fund bus capex

Profitability of bus business had been poor

Mildly positive for Land Transport operators

Continue to prefer ComfortDelGro over SMRT

What is the news?

Singapore's government announced a commitment to increase bus capacity in Singapore over the next 5 years. The government recognized that planned rail capacity injections from the new rail lines would take time to materialize, but easing of daily congestion is a more immediate task. Consequently, the government would partner the public transport operators (PTOs) to add c.800 buses into the system over the next 5 years. Of these new buses, the government would fund the purchase of 550 buses, while the PTOs would add the balance 250. To fund this purchase and the running costs for 10years, the government will establish a Bus Services Enhancement Fund worth S$1.1bn.

How do we view this?

We view this as mildly positive for the Land Transport operators (SMRT, ComfortDelGro). Higher CAPEX and increased operating expenses due to the increase in fleet size had been a drag on the profitability of the bus business for both PTOs that are struggling to breakeven in recent quarters. SBST and SMRT operate c.3k and c.1k buses respectively and the capacity injection would increase capacity by 20%.

Investment Actions?

We continue to prefer ComfortDelGro over SMRT due to its cheaper valuation and better geographical diversification. While the initiative is positive for the PTOs, We opine that better clarity on the future fare review mechanism would provide better confidence to investors.

Land Transport – Phillip

Some help in funding bus capex

Sector Overview

The Transportation Sector under our coverage consists of Airlines (SIA, Tiger Airways), Shipping (NOL), Land Transport (SMRT, ComfortDelGro) & Aviation Services (SIA Engineering, ST Engineering, SATS).

Government initiative to fund bus capex

Profitability of bus business had been poor

Mildly positive for Land Transport operators

Continue to prefer ComfortDelGro over SMRT

What is the news?

Singapore's government announced a commitment to increase bus capacity in Singapore over the next 5 years. The government recognized that planned rail capacity injections from the new rail lines would take time to materialize, but easing of daily congestion is a more immediate task. Consequently, the government would partner the public transport operators (PTOs) to add c.800 buses into the system over the next 5 years. Of these new buses, the government would fund the purchase of 550 buses, while the PTOs would add the balance 250. To fund this purchase and the running costs for 10years, the government will establish a Bus Services Enhancement Fund worth S$1.1bn.

How do we view this?

We view this as mildly positive for the Land Transport operators (SMRT, ComfortDelGro). Higher CAPEX and increased operating expenses due to the increase in fleet size had been a drag on the profitability of the bus business for both PTOs that are struggling to breakeven in recent quarters. SBST and SMRT operate c.3k and c.1k buses respectively and the capacity injection would increase capacity by 20%.

Investment Actions?

We continue to prefer ComfortDelGro over SMRT due to its cheaper valuation and better geographical diversification. While the initiative is positive for the PTOs, We opine that better clarity on the future fare review mechanism would provide better confidence to investors.

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