Author: tfwee
Transport – BT
Through fare adjustment may negate fare hike
Transport firms cleared to apply for bus, train fare increase of up to 3%
PUBLIC transport operators’ (PTOs) revenues may be hurt despite a fare review that allows a maximum fare adjustment of 3 per cent for 2008 because of the introduction of distance-based through fares.
Yesterday, the Public Transport Council (PTC) announced that public transport operators can apply for an increase in bus and train fares of up to 3 per cent. This was arrived at after a review of the fare adjustment formula, which PTC has tweaked slightly.
The formula, unveiled in 2005, is pegged to three macroeconomic factors – the consumer price index (CPI), the average monthly earnings (WI) and the productivity extraction, which is a measure of productivity gains.
The original formula was 0.5 (change in CPI) + 0.5 (change in WI) – 0.3 per cent, where 0.3 per cent was the productivity extraction from 2005 to 2007.
For 2008-2012, PTC says the relative weights for changes in CPI and WI remain unchanged but the productivity extraction component is now 1.5 per cent. So the new formula is 0.5 (change in CPI) + 0.5 (change in WI) – 1.5 per cent.
PTC also announced that as part of the Land Transport Masterplan, distance-based through fares will be introduced to facilitate more seamless transfers on the public transport system.
Currently, a commuter who transfers between buses, or between bus and MRT, incurs a ‘transfer penalty’ when taking the subsequent vehicle because of the additional ‘boarding charge’.
But with the introduction of through fares, this penalty – about 35 cents now – will be reduced in two stages over 2008 and 2009, and commuters will only have to pay for the extra distance travelled.
The aim is to avoid penalising commuters who make transfer journeys, which can be faster than a single direct trip, and give them more route choices.
But depending on how PTC apportions the cost of reducing this ‘transfer penalty’ between operators and commuters, it may affect the bottom line of the two listed PTOs – SBS Transit and SMRT Corp. That will only be known in September because the PTOs have to first submit their applications for a fare hike in August. PTC will make known its decision in September, and the new fares will take effect in October.
Through fares could result in lower fare revenues for the PTOs and negate some of the benefits from a fare increase, says one industry analyst.
‘Even with a fare hike, the through fare adjustment may neutralise any potential revenue increase for the transport operators,’ he says.
He adds that it all depends on how many commuters start making transfers. Based on current travel patterns, four in 10 adult EZ-Link commuters make transfer journeys on a weekday. That number is expected to rise significantly with the introduction of through fares.
‘Under the new system, people who make transfers may pay lower fares, while those who don’t make transfers will pay more because of the 3 per cent fare increase,’ says the analyst.
‘Total fare revenues will depend on how many commuters make up each group.’
But there could be a silver lining in all this. He says: ‘While this may not seem like good news initially, lower fares could attract more people to use public transport, thus increasing the overall ridership and fare revenues.’
ComfortDelgro – BT
Comfort DelGro unit to acquire Custom Coaches
Deal will give it 35 per cent share of the Australian bus building market
COMFORTDELGRO Corporation’s Australian subsidiary, ComfortDelGro Cabcharge (CDC), has entered into a memorandum of understanding for the acquisition of bus builder Custom Coaches, which will give CDC a 35 per cent share of the Australian bus building market.
CDC was set up in 2005 as a joint venture between ComfortDelGro and financial services provider Cabcharge Australia.
The proposed acquisition will act as a base for the group when it opens its new manufacturing plant at Rutherford, Hunter Valley in early 2009.
The acquisition is subject to due diligence, which is expected to wrap up in about a month’s time.
‘If this goes through, it will help us get a foothold until the building plant goes into operation,’ said ComfortDelGro spokesperson Tammy Tan.
Custom Coaches has bus building factories for fabricated stainless steel buses in Sydney, Adelaide and Gold Coast.
About 44 per cent of the group’s turnover currently stems from its overseas operations.
However, the group had stated earlier this year that is targeting 70 per cent of total turnover to stem from overseas operations within five to seven years.
Since its formation, ComfortDelGro, the world’s second largest land transport company, has adopted an aggressive overseas expansion strategy and currently has operations in seven countries – Singapore, China, the United Kingdom, Ireland, Australia, Vietnam and Malaysia.
Rising fuel costs caused the group’s net profit for the first quarter ended March 31 to drop 9.4 per cent to $50.2 million.
Revenue increased 5.8 per cent to $753.5 million, on the back of strong contributions from both its local and overseas operations.
ComfortDelGro’s Q1 earnings per share was 2.41 cents, down from 2.67 cents last year.
First-quarter turnover for the bus business rose 5.7 per cent to $378.6 million due to higher contributions from the group’s operations in Australia and China.
Overseas bus operations accounted for 59 per cent of total group bus turnover.
ComfortDelGro MD and group CEO Kua Hong Pak had said previously that the ‘various operations around the world remain sound, with most showing good growth at the top line’.
ComfortDelGro shares closed at $1.47 each yesterday, up by three cents.
SingPost – BT
SingPost HQ up for sale with $850m tag
Terms of any leaseback deal could determine price it fetches: observers
THE buzz created by recently unveiled plans to develop the Paya Lebar area into a commercial hub may get a boost from Singapore Post’s planned sale of its landmark headquarters building next to Paya Lebar MRT Station.
BT understands the listed group has launched an expression of interest for the 14-storey building and the price tag is said to be around $850 million based on the existing use of Singapore Post Centre.
SingPost is expected to lease back the space it currently occupies – which is roughly half the building’s one million sq ft net lettable area – for both its corporate office and operations, including the mail processing centre.
The rest of the property is leased to a mix of retail and office tenants, including NTUC FairPrice, Kopitiam, Barang Barang, This Fashion, HSBC Insurance, Northwest Airlines and Symantec Corporation.
CB Richard Ellis is understood to be handling the sale of SingPost Centre.
The current approved use for the site is around 60 per cent industrial and 40 per cent commercial, based on an earlier report.
However, potential investors may seek the authorities’ approval to convert the use to full commercial, to optimise the site’s commercial zoning under both the 2003 and 2008 (draft) Master Plans.
A differential premium would have to be paid to the state in exchange for realising the enhancement in use.
SingPost Centre’s existing gross floor area of 1.48 million sq ft has already tapped the 4.2 maximum plot ratio allowed under the two Master Plans.
The property is on a 352,389 sq ft site with a remaining lease of about 73 years. The 14-storey building, which also has three basement levels (mostly for retail), has 587 carpark lots.
Industry observers say the terms of SingPost’s leaseback arrangement with the potential buyer will be a critical factor in determining the price the building fetches.
Banks have also tightened lending for property acquisitions but core funds and core-plus funds, which rely less on debt and more on their own equity when making property purchases, are still interested in making acquisitions.
BT also reported recently that some of the big overseas funds which have been buying office properties in Singapore in the past few years are now also looking at industrial, logistics and business park assets, which offer higher yields.
Against this backdrop, SingPost Centre’s potential buyer may well continue with the existing industrial/commercial use of the property.
SingPost has also been selling some of its smaller properties, for instance, at Clementi Central, Boon Lay, Marine Parade and Hougang South. The group is still left with a dozen properties, including two in the prime districts – Tanglin and Killiney Road post offices.
TELCOs – OCBC
Defensive bet in these uncertain times
Frenzy over MNP. The introduction of true mobile number portability (MNP) on 13 June in Singapore was greeted with a big bash, with both SingTel and StarHub holding roadshows on 12-15 June, in conjunction with the PC Show 2008. Also evident were the blitz of full page advertisements from all three telcos, dangling attractive sign-up freebies and discounts, both in a bid to retain their existing subscribers and attract new subscribers. In addition, the telcos have taken to slashing prices for even the latest and hottest mobile phones by as much as S$600, versus the typical subsidy of around S$300-400/handset previously. This is expected to further increase the acquisition cost per subscriber, which has already seen significant increases in the previous quarter; for example, SingTel’s postpaid customer cost jumped 40% YoY to S$313 in the March quarter; StarHub’s acquisition cost rose 35% to S$124 in the same quarter.
Churn rate likely to rise. Although the churn rates are likely to increase in the next few months after the start of MNP, from about 0.8% for SingTel, 1.1% for StarHub and 1.3% for M1 in the March quarter, we do not expect any large migration of users. First, there is not much to choose between the operators in terms of services; secondly, the majority of subscribers are already locked-in to two-year contracts. More importantly, none of the telcos has actually made any price adjustments to their subscription plans, thus reducing the risk of a debilitating price war. Nevertheless, we are looking for some margin compression for the next few quarters, and will be adjusting our estimates accordingly after we see the June quarter results.
Defensive bet in these uncertain times. Going forward, we continue to expect flat to steady topline growth for the three telcos, even if there is a slowdown in the economy, as the usage of mobile phones has become an integral part of our daily lives. This can be seen in the high penetration rate that Singapore has achieved over the past few years, where it has been hovering above 100% since Sep 2006. And with their strong cashflow generating abilities, we believe their good dividend yields, at least for both M1 and StarHub, would be a good defensive bet in these uncertain times. We maintain our Overweight rating on the sector.
