Category: SBSTransit
Transport – CIMB
Sheltered stations
• Strong outperformance. Since our last sector update in Sep 08, Singapore’s public transportation stocks continue to outperform as investors seek safe havens in the current market turmoil. On average, these stocks have outperformed the FSSTI by 29% and 43% over one and three months respectively. As a unique asset class, both CD and SMRT have operations that should remain quite insulated from weak demand and rising cost of operations. There is also relatively good earnings visibility while the continued decline in energy prices should improve profitability.
• Declining energy prices. Demand for energy has fallen in tandem with a slowing global economy. Crude oil prices are now below US$90/bbl, a 9-month low. While there were concerns earlier in the year about pressures from higher fuel prices for both CD and SMRT, these fears have now been put to rest. Lower fuel prices are positive as both CD and SMRT do not hedge their diesel fuel requirements.
• Ridership growth to boost revenues. Again, we reiterate the success of the Singapore government’s initiatives in inducing motorists to switch to public transport. Recent rises in electronic road pricing (ERP) charges, high fuel prices and a looming recession have all been boosting ridership. Even with the recent 0.7% hike in fares, public transport is still the most economical way to travel in Singapore. Rail ridership growth has been in the double digits for most of the year, despite high base figures.
• Maintain Overweight. We reiterate our Overweight position on the sector on the back of defensive qualities with limited downside risks in the current risk-averse environment. We maintain Outperform with an unchanged DCF (WACC 9.2%, TG 2%) target price of S$2.28 for CD, supported by prospective dividend yields of over 5%. SMRT remains a Neutral with an unchanged DCF target price of S$2.09 (WACC 8.5%, TG 2%) due to the limited upside to our target price.
ComfortDelgro – BT
ComfortDelGro Q2 earnings down 2.9%
SBS Transit posts 56% fall in Q2 profit on rise in fuel and electricity costs
A COMBINATION of higher fuel and electricity costs, as well as diesel subsidies to taxi hirers, weighed down ComfortDelGro Corp’s net profit for the second quarter ended June 30, 2008, which slipped 2.9 per cent to $56.8 million.
But Q2 revenue rose 5.8 per cent to $790.1 million on the back of strong growth in bus and rail ridership, mileages operated, and taxi corporate billings.
Overseas turnover accounted for 43.8 per cent of total group turnover, down from 46.7 per cent a year ago mainly because of the weaker pound sterling. ComfortDelGro has extensive bus and taxi businesses in the UK.
‘The operating environment has proven to be difficult with the global economic slowdown, rising inflation and high oil prices,’ said Kua Hong Pak, ComfortDelGro’s managing director and group CEO. ‘This is not expected to ease up soon.’
Operating expenses rose 11.2 per cent to $739.2 million in Q2. Of the $74.2 million increase, fuel and electricity costs accounted for $31.0 million, while purchases of materials and consumables – mainly diesel – accounted for another $33.7 million.
The land transport giant said high energy costs were largely responsible for Q2 operating profit plunging 37.7 per cent to $50.9 million.
But the good news was that overseas operating profit accounted for a record 59.6 per cent of total group operating profit – from 41.0 per cent in Q2 last year.
In particular, the operating profit of the overseas bus businesses made up a whopping 89 per cent of the group’s total bus operating profit.
Earnings per share in the second quarter were 2.72 cents, down from 2.81 cents in the previous corresponding quarter.
For the first half ended June 30, 2008, net profit was down 6.1 per cent to $107.0 million. Interim revenue was 5.8 per cent higher at $1.54 billion.
H1 earnings per share was 5.13 cents, down from 5.48 cents previously. An interim one-tier tax-exempt dividend of 2.6 cents per ordinary share has been declared.
Higher fuel and electricity costs also put the brakes on listed unit SBS Transit’s net profit for the second quarter ended June 30, 2008, causing it to fall 56.0 per cent to $6.39 million.
But Q2 group revenue grew by 8.5 per cent to $180.4 million on increased bus and rail fare revenue, higher advertisement revenue and higher rental income.
Fuel and electricity costs in Q2 had surged 73.7 per cent to $52.4 million compared with the previous corresponding quarter, pushing the bus and rail operator’s total operating expenses up by 16.0 per cent to $173.6 million.
Earnings per share fell to 2.07 cents in Q2 from 4.72 cents in the same quarter last year.
For the first half ended June 30, SBS Transit’s net profit was 31.3 per cent lower at $21.68 million, while interim revenue was 8.5 per cent higher at $357.1 million.
Interim earnings per share slipped to 7.04 cents from 10.31 cents previously. A one-tier tax-exempt interim dividend of three cents per ordinary share has been declared.
Transport – BT
SBS, SMRT apply to raise bus and train fares on Oct 1
Reason cited: Higher cost pressures because of rising energy prices
SINGAPORE’S two largest public transport operators have applied to raise bus and train fares later this year. Yesterday, SBS Transit and SMRT Corp confirmed they have applied to the Public Transport Council (PTC) to lift fares, citing the same reason: higher cost pressures because of rising energy prices.
SMRT said in a statement that even the maximum fare adjustment of 3 per cent – about four to five cents – would not fully offset cost increases due to an ‘inflationary and higher operating cost environment’.
However, any increase is likely to be kept below one per cent, even though this year’s fare adjustment formula allows for a maximum 3 per cent jump, according to comments made by PTC chairman Gerard Ee last month. Any fare changes will kick in on Oct 1.
In FY 2008, SMRT’s energy costs soared 18 per cent to $89.7 million due to higher electricity and diesel prices. Of this amount, electricity accounted for $47.5 million, an increase of 19 per cent from the previous year.
Diesel costs for bus operations rose 17 per cent year-on-year to $42.2 million. SMRT said that it also fully absorbed the Goods and Service Tax increase of two percentage points.
SBS Transit said that it faces mounting operating costs from running the North East MRT line and most of the island’s bus services. Its spokeswoman Tammy Tan said that the company is trying to keep concession, children and student fares unchanged.
The PTC has said that it will carefully evaluate the proposals from SMRT and SBS Transit before making a decision this month. It said in a statement that it is considering the need to increase transfer rebates, preferring to have both transport operators bear part of the cost to soften the blow on passengers. The council has said that it will take into account an increasing ridership – which can boost operators’ revenue significantly – when firming up its decision.
Last year’s fare increase cap pushed bus fares up by two cents. SBS shares closed unchanged at $2.15 yesterday while SMRT was up by two cents to $1.80.
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
ComfortDelGro Q1 net profit slips 9.4%
RISING fuel costs put the brakes on ComfortDelGro Corp’s net profit for the first quarter ended March 31, causing it to fall 9.4 per cent to $50.2 million.
The world’s second largest land transport group blamed the past few months’ sharply increasing fuel prices on a $17.5 million rise in its energy and fuel costs. It added that a loss was also incurred in the sale of diesel to the company’s taxi drivers as large discounts were still being extended to them.
But the land transport giant saw Q1 revenue rise 5.8 per cent to $753.5 million, thanks to strong contributions from both its local and overseas operations. The group said growth was broad-based, with most of its businesses chalking up increases in turnover.
ComfortDelGro’s overseas operations accounted for 44.3 per cent of turnover and 47.1 per cent of operating profit.
‘It has been a difficult quarter with oil prices continually reaching new highs,’ said ComfortDelGro MD and group CEO Kua Hong Pak in a statement. ‘But we remain focused on growing our businesses. Indeed, our various operations around the world remain sound, with most showing good growth at the top line.’
First-quarter turnover for the bus business rose 5.7 per cent to $378.6 million on higher contributions from the group’s operations in Australia and China. Overseas bus operations made up 59 per cent of total group bus turnover.
At listed unit SBS Transit, net profit for the first quarter ended March 31 fell 10.2 per cent to $15.3 million on increases in fuel costs, depreciation and premises costs. But revenue rose 8.4 per cent to $176.6 million mainly due to higher bus and rail revenue, and higher rental income.
Earnings per share for SBS’s Q1 was 4.96 cents, down from the previous corresponding quarter’s 5.58 cents. The unit did not declare any dividend for Q1. The final tax-exempt (one-tier) dividend of 3.25 cents per share which SBS earlier declared for the year ended Dec 31, 2007, will be paid on May 28.
ComfortDelGro’s Q1 turnover from the taxi business was up 6 per cent to $233.9 million. In China, taxi’s turnover rose 13.6 per cent to $26.8 million on contributions from its Nanjing operations, which were acquired last August, as well as increases in fleet size in Nanning and Chengdu.
In Singapore, taxi’s turnover was up 12.2 per cent to $147.6 million mainly because of an increase in cashless transactions. But the group’s diesel business posted an operating loss of $6.3 million – in contrast to an operating profit of $6.4 million a year ago – due to diesel discounts for its taxi drivers.
As for the rail business, Q1 turnover rose 14.2 per cent to $25.7 million as the average daily ridership for the North-east MRT Line jumped 14.7 per cent to 292,000, and that on the Punggol and Sengkang LRTs increased 12.9 per cent to 42,000.
ComfortDelGro’s Q1 earnings per share was 2.41 cents, down from last year’s 2.67 cents. Net asset value per ordinary share was 73.35 cents, up from Q1 2007’s 72.44 cents. No dividend has been declared by the group.
Looking ahead, Mr Kua said the global economic outlook remained ‘very uncertain and a more widespread decline in global economic activities cannot be ruled out’.
‘Inflationary cost pressures will be felt more keenly and oil prices are likely to remain volatile and high,’ he said.
ComfortDelGro’s share price ended unchanged at $1.76 yesterday, while SBS Transit closed one cent higher at $2.22.