Singapore - Transportation ( General News )

[ishak]

Fare hikes slightly less than expected
Analyst DMG, 12 Sep 2008

Effective fare hike expected to be small; Comfort the stock to own
The net effective fare hike granted was slightly less than our expectation of 1%, but given the defensive characteristics of both SMRT and Comfort we maintain Buy. Comfort in particular offers good value, and if oil prices continue to decline, this could offer upside to our earnings estimates. Ridership growth for both trains and buses remains strong.

Fare hike offered, strategy is clearly to drive up public transport ridership
The Public Transport Council (PTC) has granted an overall net fare adjustment of 0.7% for 2008. This was slightly less than the 1% we expected. The headline percentage fare hikes are more (5.5% in some cases) but the net benefit for Comfort's bus and train operations is expected to be 0.9% and for SMRT's operations 0.6%. The difference in headline increase and the effective increase is because the transfer rebate to passengers was increased from 25 cents to 40 cents.

Transfer penalty will be fully removed in 2009
Under the Land Transport Masterplan, distance-based through fares will be introduced in 2009 to make transfers more seamless in the hub-and-spoke public transport system. So in 2009, when the fare hike requests are again reviewed, the net effective fare hikes are likely to be smaller than the headline numbers would indicate.

SMRT has contracted electricity prices; diesel prices unhedged for both
SMRT has contracted its electricity prices through to March 2009. While this should ensure stability in the cost structure, we note that the new contract was about 30% over the earlier one. Both ComfortDelGro and SMRT have no hedges in place for diesel, but indicate that they are reviewing this closely.

Comfort TP S$1.97; SMRT TP S$1.95
For ComfortDelGro our TP of S$1.97 is based on a dividend discount methodology, assuming an explicit three-year growth forecast of 5% and a 3% terminal growth rate. The assumed payout ratio is 80% and cost of equity derived is ~8%. Given that the company continues to make acquisitions and grow overseas, our forecast of 5% growth over the next three years should be easily achievable. We transition growth over three years to a terminal growth rate of 3%. Dividend payout assumption during the stable growth phase is 85%. The downside risks are higher fuel costs, for which the company currently has no hedges, and execution missteps for acquisitions overseas.

Our target price for SMRT of S$1.95 is based on a ROE/PB-growth methodology
(ROE/COE), assuming a c.8% discount rate, 6% three-year explicit forecast growth rate and 3% terminal growth rate, and ROE of c.21%. The ROE of 21% is benchmarked against current run rates. This is based on SMRT's current ROE run rate and an assumption that the company is mostly in a terminal growth rate
mode. On the downside, risks include lower-than-expected ridership, softness in the rental business for some stations when lease renewals become due, higher fuel costs, and competition in the taxi business.

[ishak]

Transportation Sector - Government announced fare adjustments
15 Sep 2008

Long-awaited fare adjustments. The Public Transport Council (PTC) has given the green light for Singapore’s two major public transport companies to raise bus and train fares by an overall 0.7%, far below the allowable 3% for 2008 going by the current fare formula. Most fares using EZlink farecards will be affected by -S$0.07 to +S$0.04 per journey. Cash fares will rise S$0.10 across the board. Transfer rebates to commuters will be raised from S$0.25 to S$0.40 per transfer. The new fares will kick in from 1 Oct 08.

Impact of fare hikes. SMRT announced that the new fares will raise its annual revenue by S$4.3m, for a net fare increase of 0.6%. Increased senior citizen concessionary travel could yield another S$3m annually. Similarly, ComfortDelgro says that the fare adjustments will lift its annual revenue by S$5.9m, which will only provide partial relief for the cost pressures it is facing. CD’s net fare increase will be 0.9%. It was not disclosed how increased senior citizen concessionary travel would increase CD’s annual revenue but it is reasonable to assume S$2m-3m, in line with SMRT’s figures.

Impact of higher transfer rebates. The increase in transfer rebates to S$0.40 per transfer is a progressive step towards a distance-based fare system. As S$0.10 of the S$0.15 increase will be absorbed by CD and SMRT, the total cost will be about S$30m annually.

Net impact. The increased fares plus increased senior citizen concessions would result in annual increases of S$16.2m in revenue for CD and SMRT combined, which would be negated by the absorption of the S$30m from higher transfer rebates. Despite this, the eventual impact will be insignificant vs. the combined land transport revenues (bus and train) of over S$1.4bn for CD and SMRT. CD's Singapore transport revenues (via SBS Transit) amount to S$670m, while SMRT's revenue for FY08 was S$802m.

The big picture. What's important is that the government’s measures to stimulate the use of public transport continue to gain momentum. As we highlighted in our sector update on 3 Sep 08, bus and train ridership has been climbing yoy. This is a stronger positive indicator of future revenues than mere fare increases.

Overweight. We remain Overweight on the public transportation sector on the back of defensive qualities that minimise downside risks in the current risk-averse market environment. In addition, average dividend yields in excess of 5% are attractive. We have essentially maintained our forecasts for CD and SMRT, despite the fare increases as these would be negated by transfer rebates. At the same time, stronger ridership and moderating fuel costs have been assumed in our forecasts. Maintain Outperform on ComfortDelgro with a DCF-based target price of S$2.28, (9.2% WACC) and Neutral on SMRT with a DCF-based target price of S$2.09 (8.5% WACC).

[ishak]

Singapore Land Transport Sector
15 Sep 2008
Previous day closing price: $1.51 (ComfortDelgro), $2.00 (SMRT)
Recommendation: BUY (ComfortDelgro), HOLD (SMRT)
Target price: $1.82 (ComfortDelgro), $1.84 (SMRT)

A delicate balancing act
The Public Transport Council (PTC) has announced (1) an overall net increase (w.e.f. 1 Oct 2008) in bus
and train fares of 0.7%; and (2) an increase in the transfer rebate from 25 cents to 40 cents, a prelude to
the complete removal of the transfer fare as part of the distance-based fare system to be introduced next
year. While not everyone will be happy with the increase, the combination is fair to both commuters and the
public transport operators (PTO), in our view.

Balancing act #1
Unlike past years when everyone across the board paid more in fares, the PTC has this time, not only
capped the net rise at just 0.7%, but with the help of Phase 1 of the distance-based fare system (Phase 2
will involve another 20 cents increase next year, i.e. a complete removal of the transfer penalty), ensured
that most commuters will pay less (up to 7 cents less) depending on the number of transfers made. Only
direct trips will cost more (up to 4 cents more).

Balancing act #2
In addition, the PTC has lessened the financial impact on the PTOs as much as possible. While it is
estimated that a higher transfer rebate will remove about $30m in fare revenue per annum from the
system, SMRT and SBS Transit are still expected to realise combined higher revenue of $10.1m per
annum (57% for SBS and 43% for SMRT) from the fare increase.

Paying upfront for future gains
The higher fares will still not cover the PTCs’ costs, such as diesel and electricity, financial aid for the
needy, concessions for the elderly, and especially capital costs (such as bus mid-life upgrades and
introduction of wheelchair-friendly, Euro V emission-compliant buses). But there should be longer-term
gains in terms of ridership, fueled by infrastructure expansion, a larger population and escalating cost of
private transport.

Already priced in
We believe the market will generally not react to news of either the hike in fares or the transfer rebate as
they are already fairly well-known by investors. We therefore maintain our present recommendations of
BUY on ComfortDelgro and HOLD on SMRT.

OVERVIEW OF PTC FARE CHANGES
What the PTC has approved
On an absolute basis, both bus and train rides (MRT and LRT) will cost 4 cents more from 1 Oct if Ez-link
cards are used and 10 cents more if paying in cash. This applies to all adult commuters, including senior
citizens who currently pay a flat fare regardless of distance travelled.

However, there will be a 15 cents increase in the transfer rebate from 25 cents to 40 cents.

The overall fare adjustment is therefore 0.7%, after taking into account the transfer rebate hike.

No changes to child/student concession fares and student/NS man monthly concession passes.

A new fare band has been added. Commuters who take long-distance bus rides (beyond 35.5 fare stages)
will pay 9 cents more per trip.

Impact on commuters
Commuters in general will pay between 7 cents less to 4 cents more per trip, depending on the number of
transfers (i.e. bus to bus, bus to train, train to bus). The more transfers, the higher the rebate given. In
contrast, direct trips (i.e. no transfer) will cost 4 cents more as there will be no rebate given.
There will be cost savings for 4 in 10 commuters who use Ez-link cards. Of the group of 4 commuters, 1
will see no change while 3 will see lower expenses. The rest will have to pay 4 cents more.

Impact on PTOs
The PTOs will absorb 10 cents of the 15 cent rebate increase, with the rest spread amongst commuters
who make direct journeys, with the reasoning being that they have been subsidised in the past by
commuters who had to take a circuitous route.

[ishak]

Land Transport Sector: 0.7% Fare Adjustment For 2008 To Contribute Marginally To Revenue Expansion
15 Sep 2008
ComfortDelgro (BUY\S$1.51\Target S$1.85)
SMRT (BUY\S$2.00\Target S$2.08)

The Public Transport Council (PTC) has decided to grant an overall net fare adjustment of 0.7%, which is significantly lower than the 3% cap allowed for by the fare formula for 2008. From 1 Oct 08, most bus and train journeys’ fare will range from a 7¢ reduction to a 4¢ increase per journey.

The transfer rebate for adult EZ-Link fares will be increased by 15¢ to 40¢, and the public transport operators will bear 10¢ out of the 15¢ increase. Adult EZ-Link fares on buses and trains and the senior citizen concession EZ-Link fare will see a flat increase of 4¢ per ride. This will be offset by the 15¢ increase in transfer rebate.

Under the Land Transport Masterplan, distance-based through fares will be introduced in 2009 to make transfers more seamless in the hub-and-spoke public transport system. The transfer rebate increase of 15¢ is ahead of the removal of the transfer penalty altogether by next year.

Our sensitivity analysis shows that a 1% increase in Singapore fares will lead to a 1.8% and 3.9% rise in ComfortDelgro and SMRT net profit respectively. Given the small net increase in fares, the impact on ComfortDelgro and SMRT earnings is seen to be marginal.

However, the recent weakness in crude oil price is positive for ComfortDelgro and SMRT earnings. From an average of US$134/bbl in Jun 08, crude oil price has fallen to an average of US$117/bbl for Aug 08, and the current level is close to US$100/bbl. Our sensitivity analysis shows that a 10% fall in crude oil price will raise ComfortDelgro and SMRT net profit by 9% and 6% respectively. We expect further weakness in crude oil price going ahead, which could stimulate the share prices for both these operators.

Our top pick within the sector is ComfortDelgro, with a S$1.85 target price, based on sum-of-the parts valuation. SMRT is also a BUY with a S$2.08 target price, based on DCF valuation.

[kennynah]

as h2 pointed out...now that CL is <100, then increase fare...cock up lah... do it when it was 140, would have been more meaningful...now, increase,...so if CL stablizes at around $100 or less, then how? lower fares ...? tan ku ku man. this is anti-newtonic law one...it goes up, it wont come down...

[HengHeng]

thats y our transport minister is the most talented talent we have employed leh ,.

[kennynah]

is it still mabuk tan ?

[blid2def]

is it still mabuk tan ?

LOL... you and me really sama sama - fugging out of touch. I had an impression it wasn't him anymore, but had to check who it is. Well, it is now... get this:

Lehman Lim.

[kennynah]

wahahahaha.....bankrupt liao....hahahaha.... entrepreneurial ministar become lorli chief ah....

[HengHeng]

as an entrepreuner minister did he do anything to promote entrepreneurship ?

Want people to do bussiness first let small bussinesses be able to take small loans of lesser than 20k with low or zero interest and with garmen subdize half..

But bussiness must tong at least half year at least statement wise only then the rebate will go through .. at least like that people then dare to... try mah ... this kind of simple thing also dunnno ... so much money dump into those lan jiao investments .. and not to invest in its people..

Everything also throw for people to tong by themselves ... got idea also dun wanna do coz... living expenses in singpaore so high.. better to work for peopl.