SMRT – DMG

Announces S$900m of upgrading plans

900m to be rolled out over eight years. SMRT has announced a planned renewal and preventive maintenance across the MRT system which is estimated to cost S$900m. It intends to address the needs of an ageing 25 year old MRT system, on top of the current maintenance regime for the tracks and trains. The cost sharing arrangements between SMRT and LTA are currently in discussion, and this program is expected to roll out over eight years.

Costs borne by SMRT still unclear. Though we do not know SMRT’s share of the costs at this point in time, we think that the impact on SMRT may not be that significant. The simple average of the S$900m amounts to S$113m a year, while our sensitivity analysis shows that if our FY13 base case capex increases by S$100m (or 40%), SMRT’s FY13 PAT would only decrease by 6%. Moreover, we see a possibility of LTA bearing the bulk of the S$900m cost, given its recent efforts to more actively engage in Singapore’s public transport matters (as shown from the S$1.1b Bus Services Enhancement Fund announced in the 2012 budget). Maintain NEUTRAL with TP of S$1.73.

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