Category: SMRT
Transport – BT
Transport Central – on its way to wean you off cars
LTA will play central planner; more operators in bus industry to raise efficiency
In moves that will nudge car owners to hop onto public transport for a quick and comfortable ride, the government has unveiled plans to integrate bus and rail services and to open up the basic bus service industry to more operators.
The changes were announced yesterday by Transport Minister Raymond Lim and are part of a land transport review which seeks to make public transport the preferred mode of travel.
Among the initiatives being rolled out:
The Land Transport Authority (LTA) will take a centralised bus planning role from end-2009.
There will be more bus lanes and an extension of the full-day bus lane scheme.
On the road, buses will have priority over other vehicles when exiting bus bays and at major junctions.
After 2009, the bus service industry will be gradually opened up and routes tendered out.
A review of the rail network, cars and the road system was also undertaken and the respective details will be announced over the next couple of weeks.
Yesterday, Mr Lim said that the land transport review sought to answer the key question: What will it take for the majority of Singaporeans to choose the bus or MRT over the car? With the current 8.9 million daily journeys today set to jump to 14.3 million by 2020, making public transport the centrepiece of Singapore’s land transport system is crucial.
‘We will invest in quality, not just system capacity,’ he said. ‘We need to ask: Can people get to a train station or bus stop quickly and comfortably?’
More competition – but of a different kind – is seen as a key element in this strategy.
By next year, buses may not just be adorned with the familiar SBS Transit or SMRT colours. Competition will be introduced to raise efficiency and service levels. There are about 3,700 public buses today, of which 2,900 are SBST‘s. Mr Lim said that economies of scale are limited for bus operators with a fleet size above 500 buses.
‘Our intention is to introduce competition ‘for’ the market, where operators compete periodically for the right to provide a package of bus services designed by the LTA,’ he explained. ‘This is different from competition ‘in’ the market or head-on competition for market share, which would be detrimental to an integrated public transport system where the emphasis is on cooperation to grow the overall pie.’
The LTA could not say how many new operators are expected to enter the field but currently, there are only a handful of private bus operators with a fleet of 50 buses or more. Ironically, the market leader is ComfortDelGro Bus, a subsidiary of ComfortDelGro Corp, the parent company of SBST, with more than 300 buses.
But as with other private bus operators such as Woodlands Transport and Yeap Transport, its mainly school and tour buses are not suited for basic bus services.
‘These private companies will have to invest in new buses if they want to tender for the routes,’ said one bus company executive. ‘But they have also been known to cooperate among themselves as joint ventures, so we will have to see.’
To solve the problems of waiting time, travel time and overcrowding, the government wants to make the hub-and-spoke system seamless. This model, using buses to ferry commuters to a hub from which they will continue their journey on another bus, is more efficient than a direct bus service.
‘We need to improve the connectivity of our hub-and-spoke system, in particular, the integration between the feeders, trunk buses and MRT,’ said Mr Lim. ‘Only then can we ensure seamless transfers and make the whole public transport journey as convenient as possible.’
Currently, the two public transport operators – SBST and SMRT Buses – plan bus routes based on commercial considerations with minimum service obligations. As part of the new people-centric approach, LTA will become the central planner. By 2015, the target is for 80 per cent of public transport commuters to complete their journeys within an hour – up from 71 per cent today. And by 2020, the gap between public transport and car journey times will be reduced, with the former not taking more than 1.5 times the latter – down from the current 1.7 times.
To shorten waiting time for buses and reduce crowding, at least 80 per cent of bus services must be run at peak frequencies of 10 minutes or less by August 2009, compared with 15 minutes today.
SMRT – Phillip
Within Expectations
2Q Results. SMRT reported 2Q revenue of S$197.3m (+5.2% yoy) and net profit of S$39.5m (+25.3% yoy). The growth in revenue was due to higher ridership, improved taxi average hired-out fleet and strong contributions from rental and advertising.
In view of the excellent performance, SMRT announced an interim ordinary dividend of S$26.5m or 1.75 cents per share.
Performances by various businesses. SMRT registered growth in fare revenues from MRT (+5.7% yoy) and LRT (+4.4% yoy) operations while the buses operation posted minor growth in revenue (+0.7% yoy). The increase in average daily ridership resulted in the growth in revenues from the operations.
Moreover, for non-fare operations, there was double digit revenue growth from taxis (+12.3% yoy), rental (+12.8% yoy) and advertising (+24.6% yoy). The strong performances from taxis was due to the higher average hired-out rate at 90.2 percent in 2Q. Meanwhile, the increase in rental space and better yield caused the growth in rental. Furthermore, the increase in advertising on trains and stations resulted in better advertising sales.
However, revenue from engineering and other services declined (-11.7% yoy) due to the deconsolidation of Transit Link.
FY 08 Outlook. Management remains optimistic about its business in 2008. It expects growth in revenues from trains and bus operations as well as taxis, rental and advertising. Nevertheless, other operating income is likely to be lower in FY 08 as there were contributions from expired farecards in FY 07.
Maintain HOLD recommendation, target price raised from S$1.32 to S$1.70. SMRT has posted financial results within our expectations. Moreover, it continues to register increases in revenues and profits. This is a defensive stock for investors who would like to hold for payment of dividends. Based on our discounted cash flow model, the fair value is raised to S$1.80 to reflect the progressive growth in cash flow from operations.
SMRT – JPM
SMRT – CIMB
No near-term catalysts
• Above expectations. 2QFY08 net profit of S$39.5m (up 25.3% yoy) was 11% above our estimate and 6% above consensus on an annualised basis. The difference was lower-than-expected expenses. Revenue increase of 5.2% yoy to S$197.3m was within our expectations, driven by higher train and bus ridership, improved hire-out rates for taxis, and higher advertising and rental revenue. Core EPS was S$0.026, up 23.8% yoy.
• Expenses well-managed. SMRT’s operating expenses climbed marginally by 0.2% yoy to S$153.6m on lower staff-related costs (-3.6% yoy) and depreciation (-2% yoy) but offset by higher energy costs (+25.8% yoy) on the back of higher electricity costs. Diesel costs remained relatively unchanged despite the volatility in prices. However, with a new electricity contract starting 1 Oct 07, electricity costs are expected to be contained. Maintenance expenses rose 8.4% yoy due to a larger bus and taxi fleet. Although staff costs were lower in 2Q, we expect costs to rise in the coming quarters due to a human-resource shortage, and the need to raise wages to retain staff as well as the impact of higher employers’ CPF contributions.
• Operational outlook. Train operations performed well due to higher ridership and the fare revision in Oct 06. The main growth areas continued to be rentals and advertising on the back of a robust economy and increased rental space at refurbished MRT stations. LRT operations also moved closer to breakeven, but were again plagued by higher energy costs. Taxi operations turned around with a small operating profit of S$0.2m from a loss of S$0.9m in the previous year.
• DCF target price unchanged at S$1.82 (7.5% WACC; 2% terminal growth). We are maintaining our forecasts as we estimate that staff and volatile energy costs in 2H will continue to put downward pressure on profits. We believe upside would be limited, given the lack of share-price catalysts in the near term. Maintain Underperform.
SMRT – DBS
Tight cost management boosts earnings
Comment on Results
2Q08 results were above expectations as SMRT performed better than we expected in managing costs.
Revenue grew by 5.2% yoy to S$197m for the quarter whilst EBIT grew by 19% yoy to S$48m, as operating costs were flat yoy. Net earnings grew by 25% yoy to S$39.5m for 2Q08.
At half-time, SMRT’s net earnings are up by 32% yoy to S$77.5m on top line growth of 6.4% to S$391m. Revenue and profitability were led by core MRT operations, which saw revenue grew by 5.7%, driven by higher ridership and fares, with EBIT expanding by 15%. There were also growing contributions from the rental and advertising segments.
Recommendation
We have raised our earnings estimates for FY08 and FY09 by 12% and 11% respectively to factor in SMRT’s tight cost management. As a result, we have also raised our DPS forecast for SMRT (based on 80% payout) to 7.5cts net and 8cts net for FY08 and FY09 respectively.
On the back of our higher DPS estimates, we have raised our target price marginally to S$1.78, based on a target net yield of 4.5% for FYE Mar ’09. We maintain our HOLD call.
SMRT has declared an interim dividend of 1.75cts net, compared with c. 1.25cts net a year ago.